Seeking guidance, please, as I have done very few S-Corp returns. New client on extension is LLC and filed as Partnership for 2016. As of 1/1/17, prior accountant filed paperwork electing them to be taxed as S Corp. As of 1/1/17 their liabilities exceed their assets, resulting in negative RE. Same situation for end of 2017. Does this trigger tax for them in 2017 because of this negative RE? Details: @ 12/31/16 they had assets (cash) of $62,045, liabilities (credit card & 2 bus loans) of $64,942, resulting in negative equity of $2,897. @ 12/31/17 they had assets of $33,631, and liabilities of $51,623, resulting in negative equity of $17,992. There are no shareholder loans. They have no A/R. Also, is this negative $2,897 from 2016 the starting Capital Stock Amount for 2017 (for Schedule L) since they are now filing as an S-Corp? How can Capital Stock be negative?? Very confused and would appreciate any info. or guidance. Thanks!!