Nondeductible expenses do reduce capital accounts.

Tax basis capital account (as reported on k-1, part L )should be the entity Taxable income/(loss) for current year. ( Note taxable income already reflects the removal of nondeductible permanent items.)  The PS auto calculation takes "taxable income/(loss)" and deducts the Schedule M of permanent items thus putting the income/(loss) back to a book basis.  That is wrong.  If you don't over ride and input taxable income/(loss) into the M-2 line 3 schedule, the capital account would be on a "book basis" not the "tax basis".

If using PS, follow the auto calculations and let me know how to get "taxable income/(loss)" reflected on the K1 for Capital Account Analysis (tax basis)....

Figured out system is calling "taxable income" the total net change in the capital account.  It's auto adjusting and combining items versus adding other lines or separately accounting for tax capital account items.