Good question! But not a cause for concern. It’s normal.
Disclaimer: I am not a CPA, financial adviser, tax planner, lawyer, doctor or anything close to any of these things. I’m just a real-estate investor with some great partners whom I’m very thankful for and trying to help out by answering their questions as best that I can.
Here is the response to that question from our Tax-prep CPA:
The reason for the ongoing difference is that the capital accounts will begin to slightly change as distributions are made over time – due to the IM and B unit members receiving a higher distribution as per their profit sharing ratio (and thus reducing their capital acct faster) than the other LP’s. The capital account is an accounting calculation that is basically the INDIVIDUAL PARTNER’S TOTAL CAPITAL OVER THE PARTNERSHIP’S TOTAL CAPITAL ACCTS after income allocations and distribution deductions. Thus as distributions given to the IM and B Unit members are greater than their original capital (which originally is equal to the profit / loss %), their capital accounts are being reduced at a greater rate. Some tax preparers do not do the actual accounting capital allocations on the K-1’s.
She went on to say that no matter which approach is taken it all gets settled up upon sale of the asset.