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Making a Section 1377 (A)(2) Election for an S-Corporation return in Lacerte

by Lacerte Tax 2023 Updated 10 months ago

When a shareholder sells all their stock and leaves an s-corporation, there is an election that can be taken to treat the tax year as two separate tax years.  How is that election made in the program?

To make a section 1377(a)(2) election to treat the tax year as two separate tax years for purposes of allocating items of income and expense to the affected shareholders on Schedule K-1 when there is a termination of a shareholder's entire interest, follow the steps below:

  1. On the Detail tab, select Screen 38, Elections.
  2. Select 1120S & Misc. Elect. under Election on the upper left panel.
  3. Check the box Section 1377 (a)(2) election made for tax year (code 230).
  4. Enter the Date of termination of shareholder's entire interest (code 231) and Explanation of termination of shareholder's interest (Ctrl+E) (code 232).
  5. Manually calculate the total amount of each line item to include on each affected shareholders Schedule K-1 for the tax year and enter these amounts on Screen 33, Schedule K-1 Overrides.

Additional Information:

  • The program prints an election statement with the tax return. See Elections from the Forms view.
  • Each affected shareholder's Schedule K-1 includes a notation at the top of the form that a section 1377(a)(2) election was made. The program treats a shareholder as an "affected" shareholder if you make an entry in K-1 Allocation Percentage (Screen 6, code 502) or on Screen 7, Change in Ownership.
Lacerte Tax

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