Change in Partnership

[michele]

Have a partnership that had 4 members 2 members dropped out they did not sell their interest in partnership. It had a total start up of $16,0000. 2memebers paid $4,000 each and one member put in 4,000 and 4,000 for an employee to make him a partner. The money showing in the capital account's for the 2 that dropped out does it get moved over to the 2 remaining partners?  This is a real mess. Preparing 4 years of returns. They believed they did not have to file returns since they did not have any income. They started this product development and Covid hit so never finished the product and never generated any income but they had spent all the money as expenses for the development. 

thx 

Michele

[sjrcpa]

Yes capital accounts of departing members get moved to capital accounts of remaining members.

Is it possible that all of those development costs should have been capitalized? Therefore, no deductions in the prior years and no filing requirement?