Did you complete a 7203 on the shareholder's 1040?

But even with the 7203 is there anything that links back and limits the loss in excess of basis on Sch E?  This has been a manual process with ProSeries forever unless that's changed in the past couple years.

I think TGB suggests you reduce the loss on the K-1 Wks to the allowed amount.  I've always added a second K-1 line for ABC Corp - Loss in excess of basis with an offsetting positive number.  I've seen some people suggest using the 6198.  Not quite the right approach but it probably gets you to the same tax result.

Circling back, if they didn't lose their own money, whose money did they lose?

Rick

In part II 

have you checked "Some Investment is not at risk"

I haven't had this for a while but I am pretty sure I then completed the 6198, but my experience would have predated the 7203, so I am not sure what the current best practice is.

Yes - but I think it has been incorrect from years ago before I prepared. 

They have a LOC, and I don’t believe they are personally liable. 

I’m got ya. Let the loss come through onto the 1040 on the k1 and then prepare a new k1 in the 1040 with income of the same amount. 

I haven’t yet. I’ll look tomorrow at this.