Thanks for all of the replies and good advice - if only it was that easy. Unfortunately I am a minority partner living in a foreign country where Turbo Tax knows more about the US tax system then any accountant for 200 miles. This situation developed over a 20 year period and multiple accountants. While I was an active member of the company, the accountants prepared both the partnership and personal returns, delivered everything at the eleventh hour with just enough time to sign and put them in the mail and no real opportunity or incentive to ask any questions. (My roles were technical - others acted as CFO etc) As you correctly pointed out the payments I received for participation were treated as draws, resulting in my capital account being a couple hundred thousand dollars in the red. The company was originally small, bleeding money and the accountant was all we could afford. It is obvious that mistakes were made, but no one taken the time to go back and correct them (I suspect this would open a can of worms - since there were probably other mistakes made). Over the years, I left the company, retained a small amount of ownership but the amount of profit or loss generated was practically immaterial. Now the company has grown to many millions in revenue and the amounts being reported are no longer small. The one thing that hasn't changed is the delivery by the accountants - My K1 was emailed to me at 4PM yesterday - so I had just 2 or 3 hours to decide how to account for everything. The K1 attributed way more profit to me than I made from all other sources (I'm retired) and all of it was used to offset some of my negative capital account balance. Since the capital account is negative because I received draws and paid tax on them as regular income - my contention (most likely wrong) is the amounts should not be taxable. I realize that when it is safe to travel again, I will need to return to the US and find some expert to consult. In the interim I was looking to come up with a semi-reasonable approach that was also financially workable. (If I treated the amount as taxable income the tax would be more then I will receive in 2021 from all sources) Thanks again.
