Thanks for the response. I understood the MD instructions to indicate there should be no refund unless there was zero tax liability. That's how the program operates for 1120S currently. 

And I completely agree with your answer below. The K-1 should give credit for $2000 in payments and no refund should be issued. In your opinion if the tax software is issuing a refund, then the 510 is incorrect right? There should be no refund  and the K-1's should reflect the full 510D payment. 

Thanks!