"but do I need to factor in the owner's equity from the Sole Proprietorship?"

Only if there were assets contributed to the formation of the corporation, and what about some sort of stock price consideration?

In other words, if this person formed a corporation and put into it the Money already in the business bank account and a Vehicle or equipment or furniture, then, yeah, there is some sort of equity on hand at startup.

"After that there were distributions of $600,000"

Like the Ironman said...we saw someone on this forum mention a salary of $12k. They need to have issued payroll for "reasonable compensation," even if that distribution doesn't take RE negative. And how can it? They need to have made a ton of moolah for a distribution of that size (and it still shouldn't go negative), or did they get some financing and this person is taking all that money out personally?