S-Corporation # {PrefixNum} : A negative stock basis was computed of $ {AmountOfScoDispoGain} (see the note on line Form 7203, line 6). Per Internal Revenue Code Section 1368(b)(2), if the S-Corporation has no earnings and profits from when it was a C Corporation, then the distributions that caused the negative basis amount is taxable as a capital gain. The program does not automatically compute this gain. Any gain required to be recognized must be entered into the disposition screen. Don't increase the stock basis for the amount of capital gain reported for the excess, since the program already limited the basis to zero.