If there has been a distribution in excess of basis, then gain has to be recognized on the distribution. This gain is not reported on Schedule K-1. The partner/shareholder reports the gain on their tax return.
This type of transaction will be reported as a capital gain (Long-Term) on Schedule D. The sale prices is the proceeds and there is no basis as it as already been used. To report it in TurboTax, type in schedule d in the search bar and use the Jump to schedule d link to be taken to the Investment Sales entry screen. Choose Everything Else and enter the date and proceeds - no basis.
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