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You almost have it. The double tax situation you are concerned about does not exist. If there is a profit that is not taken it does get taxed to you in the year recognized whether or not you take it. However, if in some future period you do withdraw it, it is not taxed again. Distributions are not taxable, profits are.
I like your response. However, it appears that if I take a distribution it gets recorded on schedule K-1 block 16 with the current income in block 1 which means they get combined as income on the 1040?? Are you saying I do not need to record the distribution on the K-1??
Many thanks for your help.