K-1 (1120-S) box 16 codes A to F: items affecting shareholder basis
K-1 (1120-S) box 16 is the part of the IRS Schedule K-1 where an S corporation reports items affecting shareholder basis: tax-exempt income, nondeductible expenses, distributions, loan repayments and foreign taxes. None is ordinary taxable income, but each moves stock or debt basis on Form 7203.
“Reduce the basis of your stock (as explained earlier) by distributions, not reported on Form 1099-DIV, of property or money.” IRS, Shareholder's Instructions for Schedule K-1 (Form 1120-S) (2025), box 16, code D
What does box 16 on a K-1 (1120-S) report?
Box 16 of Schedule K-1 (Form 1120-S) reports six items that change a shareholder's stock or debt basis without being ordinary taxable income: tax-exempt interest (code A), other tax-exempt income (code B), nondeductible expenses (code C), distributions (code D), repayment of loans from shareholders (code E) and foreign taxes paid or accrued (code F). The amounts come from Schedule K, lines 16a to 16f, of the corporation's Form 1120-S.
Codes A, B, C and F are allocated to every shareholder pro rata. Codes D and E appear only on the K-1 of the shareholder who actually received the distribution or repayment, according to the Instructions for Form 1120-S. The shareholder, not the corporation, tracks basis, and the 2025 Shareholder's Instructions point to Form 7203 for the calculation. Older references to box 16 often stop at code D, but the 2025 code list runs from A to F. Every other box is on the Schedule K-1 (Form 1120-S) page.
Where does each box 16 code go?
Each box 16 code on Schedule K-1 (Form 1120-S) has a reporting rule in the 2025 Shareholder's Instructions and a matching line on Form 7203. Only code A appears on Form 1040 itself, and only as an information item.
| Code | What it is | Form 1040 reporting | Form 7203 |
|---|---|---|---|
| A | Tax-exempt interest income | Form 1040, line 2a, as an information item | Line 3k (increase) |
| B | Other tax-exempt income | Not included in income | Line 3k (increase) |
| C | Nondeductible expenses | Not deductible | Line 8a (decrease) |
| D | Distributions | Not taxed up to stock basis; any excess is capital gain on Form 8949 and Schedule D | Line 6 (decrease) |
| E | Repayment of loans from shareholders | Part return of loan basis and part income if the loan basis was reduced (Treas. Reg. 1.1367-2) | Part II, line 19; gain on line 34 |
| F | Foreign taxes paid or accrued | Not used to complete Form 1116; use Schedule K-3 | Part III, line 46, column (a) |
Code F follows a different rule from the rest. The instructions say to report it on Form 7203 and not to use it to complete Form 1116, because the foreign tax credit inputs come from Schedule K-3. Code B covers items such as life insurance proceeds, according to the Instructions for Form 1120-S, and also includes amounts the corporation received for transferring credits under section 6418. For code E, the Form 7203 instructions for line 34 make gain on a loan evidenced by a formal note capital gain, and gain on open-account debt ordinary gain on Form 4797.
How do box 16 code D distributions affect basis?
Box 16 code D distributions reduce stock basis, but not below zero, and any amount above stock basis is capital gain reported on Form 8949 and Schedule D. IRC section 1368(b) gives that result for an S corporation with no accumulated earnings and profits: the distribution is tax-free up to the adjusted basis of the stock, and the excess is treated as gain from the sale or exchange of property.
Two rules limit code D. Distributions don't reduce loan basis, so debt basis can't absorb an excess distribution. And code D excludes dividends the corporation reports on Form 1099-DIV, which are paid from accumulated earnings and profits and shown on Schedule K, line 17c, of the Form 1120-S. A distribution of property other than cash is valued at fair market value, and the corporation attaches a statement with the dates acquired and distributed, the fair market value and its basis. Basis is figured at year end, with distributions applied after income and before nondeductible expenses and losses.
What does a box 16 calculation look like?
For example, Sam owns 100% of an S corporation with no accumulated earnings and profits. He starts 2025 with $12,000 of stock basis and no shareholder loans. His Schedule K-1 (Form 1120-S) shows $18,000 of ordinary business income in box 1, $500 in box 16 code A, $1,500 in box 16 code B and $36,000 of cash distributions in box 16 code D.
| Step | Form 7203 | Stock basis after |
|---|---|---|
| Beginning stock basis | 1 | $12,000 |
| Add box 1 ordinary business income | 3a | $30,000 |
| Add box 16, code A tax-exempt interest | 3k | $30,500 |
| Add box 16, code B other tax-exempt income | 3k | $32,000 |
| Subtract box 16, code D distributions ($36,000, limited to basis) | 6 | $0 |
| Distribution above basis, capital gain | Form 8949 and Schedule D | $4,000 |
Sam treats $32,000 of the distribution as tax-free and reports $4,000 as capital gain on Form 8949 and Schedule D. His ending stock basis is zero. The $500 of code A interest also goes on Form 1040, line 2a, as an information item. Whether the $4,000 is short-term or long-term depends on how long Sam has held the stock, because IRC section 1368(b)(2) treats it as gain from a sale or exchange. More on this case is on the distributions in excess of basis page.
What do reviewers check on box 16?
A reviewer checking box 16 of Schedule K-1 (Form 1120-S) confirms six items against the Shareholder's Instructions, the Instructions for Form 1120-S and the Instructions for Form 7203. The prior-year Form 7203 comes first, because a distribution can only be tested against basis once beginning basis is right. Then compare box 16 code D with the corporation's record of who received cash and when, since the corporation reports distributions only on the K-1 of the shareholder who received them, and with any Form 1099-DIV it issued. Code E needs the loan history, because a repayment on a loan whose basis was reduced by earlier losses produces income. Code F needs the Schedule K-3 alongside it, because the foreign tax credit comes from there.
Every line checked against the documents the client sent
Filed reads the client's K-1, its statements, Form 1099-DIV and the prior-year Form 7203, then checks every box 16 code against Form 7203 and Form 1040. Anything that doesn't tie comes back as a review item with a citation to the source.
Book a demoBox 16, code F shows $2,340 of foreign taxes, and the same $2,340 is entered on Form 1116 while Form 7203, line 46, column (a) is blank. Confirm the Form 1116 amounts come from Schedule K-3 and move code F to Form 7203.
Common questions
Is K-1 box 16 code D taxable?
K-1 box 16 code D distributions are not taxable to the extent they don't exceed the shareholder's stock basis. Any excess is capital gain reported on Form 8949 and Schedule D. Dividends paid from accumulated earnings and profits are taxable, but the corporation reports them on Form 1099-DIV, not in code D.
Does box 16 code C reduce basis if it isn't deductible?
Yes. Box 16 code C nondeductible expenses reduce stock basis even though they are never deducted on the shareholder's return. The Shareholder's Instructions apply them after distributions and before losses and deductions, unless the shareholder elects under Treas. Reg. 1.1367-1(g) to apply losses and deductions first.
Where does box 16 code F go?
Box 16 code F foreign taxes go on Form 7203, line 46, column (a), as an item that reduces basis. The Shareholder's Instructions say not to use the code F amount to complete Form 1116. The foreign tax credit uses the information the corporation provides on Schedule K-3 instead.