"I'm just trying to figure out what they can legally do?"

Right here: "I'm not sure what a lawyer will do at this point."

You answered your own question.

"there is a purchase contract between the old owner and the partnership. Sorry, I'm not sure what you're implying?"

I'm not implying. I stated that a buy/sell means there is in fact a formal explanation that included valuations for whatever was bought. Then, Bill brought up these considerations: "If the bar goes out of business, will there be assets? I they put $150,000 into the bar, there may be assets that will be sold, creating Basis for the son to deduct losses.

Amending an agreement might be more of a lawyer situation. And I suspect you first need to figure out what was the original understanding/agreement? I wouldn't think you can amend things just because you realized after-the-fact that it isn't an ideal setup."

So far, you are asking to allocate the operating loss, which is a very small part of this entire picture. And he mentioned backing up to the original document, get it to a lawyer with the right experience, to figure out how or if they have the right info for basis, ownership, contributions, etc.

You cannot keep asking the Internet. We cannot look at all of the paperwork to tell you what they did, and we don't know the local laws, requirements, regulations, to tell you what they did not do. You keep stating both assumptions, and requests, but you need to work off of facts.

For all you/we know, their purchase included real estate that has increased 4 fold due to the pandemic and/or equipment that is not being made due to material shortages and is more valuable now than the valuation assigned in the buy/sell. We don't know anything about anything in this scenario, but it is not as simple as you stated.