Without the history it is odd that the capital accounts reflect what you indicate above.
Without going into the complicated discussion of partnership 704(b) regulations, I would say that if you do have $1,200 in cash then that should go to the partner with the $1,200 tax basis ending capital. This results in what I would expect to see in the end. In general, the regulations state that liquidating distributions should be distributed to partners with positive "capital accounts". Note, however, that when the regulations refer to capital accounts this is technically not the tax basis capital account, but I believe you are arriving at the correct result; tax basis capital and "capital account" as referenced in the regulations could be the same but generally not.
You report that on the K-1 as you noted and no 1099-DIV is required.
There is no reporting required when distributions do not exceed your basis.
However, you will need to report the liquidating distribution figure and cost basis on form 8949 and Sch D, but since they offset there will be no gain or loss.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
