Review of Partnership Income Form 1065 with Schedule K1 · Sch. E may disclose K1’s from Partnerships, LLC’s, S -Corp’s and CMO’s… But it may be reported Rental Income

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Tax Return Review-Partnership Income Form 1065 with K1Tax Return SeriesDecember 2018

Objective

”Understand the meaning of “Self Employed‏ Learn to use Fannie Mae’s Form 1084 to calculate supportable‏income using tax returns. Complete Fannie Mae’s Cash Flow Analysis Form 1084‏

– 1065 K1 Review (Section 7)– 1065 Review (Section 8)– Solvency/Liquidity Test

Partnership Form 1065 with K1


Tax Forms-

You’ll Need Calculators-


Fannie Mae’s 1084

Partnership Form 1065 with K1‏5


The Case Study…The Case Study Amy Artist

Amy is a 66.6700000% member of an LLC.

Her reported taxable Income is a small amount of interest and a K1 from Street Art Design Company LLC

Partnership Form 1065 with K1‏

1065 Partnership

Line 22 Ordinary Income $_________

K1%


Schedule E page 2

Part II

Net Income $_______

1040

Line 17 Net Income Sch.E

*$_________

*Taxed at a personal rate

7

Form 1065 / Partnership Return.Five pages long‏:First page follows the typical tax form pattern‏

– Income listed, deductions taken, taxable income/loss derived.-Second, third‏ fifth pages are Schedules.

– Every partnership completes the schedules, so they are part of the form.


Check for trends or changes‏– Gross receipts – Cost of Good Sold– Gross Profit – Bottom line “Ordinary Income”

Partnership 1065

Partnership Form 1065 with K1‏ 9


1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


10

Partnership K-1



1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


12

Review Schedule E



1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


14

1040



1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


16

Review Schedule E

17

Now you need to review the K1…Partnership Form 1065 with K1‏


1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


18

Partnership K-1



1065 Partnership


K1%


Schedule E page 2

Part II

Net Income $_______

1040


*$_________


20

Check for trends or changes‏– Gross receipts – Cost of Good Sold– Gross Profit – Bottom line “Ordinary Income”

Partnership 1065


Income Analysis Form 1084 Section 7

Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove the borrower is Self Employed. Sch. E may disclose K1’s from Partnerships, LLC’s, S-Corp’s and CMO’s… But it may be reported Rental Income.


Income Analysis Form 1084-Section 7


IF

As a Lender you must determine the Investors guidelines and use prudent underwriting analysis. We believe this method to be a best practice.

24Partnership Form 1065 with K1



IF

As a Lender you must determine the Investors guidelines and use prudent underwriting analysis. We believe this method to be a best practice.

Fannie Mae Selling Guide






Solvency and Liquidity


Acid Test or Quick Ratio


Solvency

Quick Ratio‏

Also called the acid test ratio‏

Excludes inventory; includes only the most liquid assets‏

Indicates how quickly a Co. can pay its current obligations without relying‏on future sales or its ability to meet its near term obligations

.Rule of thumb: $1.00 to $1.00; then the Co. is considered liquid‏Important: What is the industry standard?

As the ratio gets smaller, paying bills becomes more difficult and a cash‏withdrawal could be devastating

*Cash + Accounts Receivable + Other Current Assets = Current Assets

Total Current Liabilities

*Cash includes all current assets



Solvency

(Cash + Accounts Receivable) + Current Assets -Total Current Liabilities

{ {

Every Business Return will include a 2 Year Balance Sheet as Schedule L(unless total business assets are less than $1,000,000)

& Total receipts are less than $250,000

32

1065 Review for Solvency/Liquidity

The last page of the 1065 Return is a Balance Sheet (Schedule L)


34

LiquidityGenerally Accepted Accounting Principles‏


(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)

Balance SheetQuick Ratio or Acid Test

Current Assets :Current Liabilities:

Current Assets:

Current Liabilities: .201 - Solvency


$765 + 0 + 0 +0+0 = $765

$0 + $0+ $3,800 = $3,800

36

LiquidityGenerally Accepted Accounting Principles‏


Other Current Liabilities


Is the business loan due in full?









Balance Sheet


Could We Verify What Is Included On Line 17? Our Borrower Indicated The Business Loan Listed Has Been Paid Off And Provided Evidence When Advised That The

Business Did Not Appear Solvent

Liquidity Test Without The Loan


Do You Feel More Comfortable About Using The Guarantee Payment Now?

Quick Reference Guide Partnership K-1


?Can the Guaranteed Payment be used as qualifying income‏– Lenders/Underwriters will follow Prudent Underwriting Practices and evaluate the

business, to determine if any of the $73,672 can be used– It must make sense and be supported by a written analysis



Now you need to review the 1065…










The statement must be reviewed to determine if “other deductions include amortization and/or casualty losses. None have been identified in this return.



The statement must be reviewed to determine if “other deductions include amortization and/or casualty losses. None have been identified in this return.






% of Ownership




Income 1003


Did you feel comfortable using this borrower’s Guaranteed Payments as her qualifying income?

Genworth Underwriting Guidelines


Genworth Rate Express®

Partnership Form 1065 with K1 58

LOS Connections



Training Tools and Information

Training Tools and Information



Additional MI Site Information


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Documents

Review of Partnership Income Form 1065 with Schedule K1 · Sch. E may disclose K1’s from Partnerships, LLC’s, S -Corp’s and CMO’s… But it may be reported Rental Income