I also don't think that Item L (Capital Account Analysis) includes the partner's share of nonrecourse liabilities, so watch out for that. The ending capital account may be negative but once you add in the partner's share of nonrecourse liabilities...POOF!....the taxpayer has enough basis. But not so fast....then if they have enough basis, it's on to the at-risk rules.

Does the partner have enough at-risk basis? The partner's share of nonrecourse liabilities do NOT count towards at risk basis (although there is an exception for qualified financing yada, yada, but's probably not applicable for your client). So check it out! Does he have at risk basis? If so, then you can pass go and deduct the losses on the K-1.