This is a new one for me.  K-1 capital account analysis, profit & loss sharing and capital percentages, and finally Item N partner's share of net unrecognized Section 704(c) gain are all shown at "economic value" not cost basis/tax basis.  This economic value was explained to me as theoretical liquidating value.  Finally, the ending balance is economic capital under the distribution waterfall.

Does anyone have a clue how to explain to my client who invested $7m and now shows $5.6m even though no distributions and taxable income.  Additionally he's a 1% owner but the capital percentages show 2+%.

I have a guess, but my guesses are typically wrong.