Jess, that was so long ago I had to go back and figure out what happened.

PS was correctly allocating the distributions. It had something to do with depreciation and the end result was that the beneficiaries actually received deductions on their K-1s instead of income.

I'm not sure if you have the same situation with rental property and depreciation or if it doesn't involve depreciation.

Let me know if it is related to depreciation. If so, then the Tax Adviser has an article discussing the impact of trust depreciation and distributions. 

If you can't find that article then I can send you an excerpt from the article with an example.