Hello,

I'm receiving a diagnostic related to distributions that my client took in excess of her basis. I understand that this excess distribution needs to be shown on Form 8949 as a capital gain on her personal return. But I'm not sure how to resolve the diagnostic on her 1120S.

The diagnostic is as follows:

"The amount of distributions entered on Schedule K, line 16d is greater than the total net balance available for distribution in all of the Schedule M-2 accounts by $****. This amount of excess distributions has reduced the ending balance of Retained Earnings on Schedule L, line 24."

Can anyone help me with the steps to resolve this?

Thank you!