"What am I missing?'

Even if they never took any money out of the operation, the successful operation that results in taxable income is "passed through" to them, because that's how a Pass Through Entity functions for tax reporting purposes. That means you might take no money and still have to pay taxes on the partnership's operation.

You are confusing Cash Flow and Income.

"it doesn't seem to be showing the difference of the distribution and the line 1 as taxable income."

Taking the money is not an expense. Taking it or not taking it is not a Business Activity that generates income or expense. Taking money is removing the Asset (money). Not income and not expense.

This doesn't change, whether partnership, sole proprietorship or s corporation. Are you getting mentored or taking continuing ed for tax preparation? Time to do some studying.