1. If partnership funds were used to "buy out" the other partner, this transaction would be a deemed distribution to the remaining partners. In other words, the partnership distributed the funds to the buying partners who used them to buy out the other partner. Divide the total amount between the two remaining partners and enter as cash distributions to those partners under Partner/Member Information.
2. Many partners are not active in their investments and still receive income allocations. If that is not the case for your partnership, this allocation adjustment must have been spelled out in the partnership agreement. Otherwise, the exiting partner would have income/loss reported for the year on Schedule K-1.
3. Every partner who is listed in the partnership agreement must be included on the tax return and receive Schedule K-1, even if they are not active or are a "silent" partner.
4. Yes, outside basis can be used on the partner's tax return. TurboTax will ask for this information when entering Schedule K-1 for Form 1040.
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