I have an investment partnership client that is on accrual for books, cash for tax. They record unrealized gains and losses for books, including disallowed wash sale losses. M-1 has book to tax differences to include those items.
What I'm wondering about is how to show a final distribution on the tax return. A withdrawing partner received a distribution of his ending capital account per books, which includes net unrealized losses. So, the distribution is lower than tax basis capital account, leaving an ending balance in the tax basis capital account.
Should I make an adjustment on the K-1 for this book-to-tax difference?
