I have a new client that has a partnership with his ex-wife. They have been filing a 1065 return but dissolved the partnership at the end of last year and the LLC is now going to be treated as a disregarded entity. The K-1s had distributions for each partner, the remaining owner's was close to $23,000 and brought his capital account negative. The bookkeeper, separate from the tax preparer, indicated that the distribution should have been payroll (I disagree with this), she doesn't classify things as owner's draw (only if it is a real estate agent) and does not know why it was put on as a distribution. My concern is that he took out more than his basis in the business and only paid self-employment tax on the business income of approx. $8,500.