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K-1 shows a distribution of $300 to taxpayer in 2012 but the beginning capital account was (-970) with current year increases of $150 so taxpayer is still in the negative. Being account is in negative, would the distribution be taxable to taxpayer?
It would only be taxable to the extent the distribution exceeded basis. The capital account can be negative but the basis can not. You would add back the partner's share of liabilities to arrive at the partner's basis.
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