On Schedule M-2, under Accumulated Adjusted Accounts column, rather than automatically inputting the correct distributions from Schedule K (Items Affecting Shareholder Basis: Shareholder Distributions and Dividends), it only does the Ordinary Income amount as the distribution, as if it knows it cannot be more than that. This causes an imbalance, which carries over to the Schedule L Balance Sheet. It seems retained earnings at the end of the year should be negative (Beginning Balance in Retained Earnings plus Ordinary Income minus Distributions).
Again, I think it's negative since it appears we had some retained earnings from years ago that never got carried over properly as we switched tax structures.
So, 1) how can I fix this imbalance (TurboTax says it must be fixed), which seems to be driven by the Schedule M-2 entries as described, and 2) how do I best avoid an audit given this issue?
Thank you!
