I tried a different adjustment for the "Other Income" created when I debited out the liability. I created an offset account (expense) in the debit section of my P&L. This made it all balance and flow through the state forms until I went back to repair the balance sheet. Now I have an A/P (phantom) traded for the loan amount which still needs to be explained in the M1 section. I'm not sure if this is any easier, but at least it left the reconciliation until the very end.
