When you recorded the forgiveness of the loan, you should have posted the offset to Other Income, not paid in capital. It is book income, but reported as tax-exempt income on your tax return, on line 16(a) or 18(b) of schedule K, depending on which return you are preparing (form 1065 or 1120-S.)
If you report it that way, you may not have the issue with your M-1 schedule.
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