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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
Partnership Form 1065 with K1
Tax Forms-
You’ll Need Calculators-
Partnership Form 1065 with K1
Fannie Mae’s 1084
Partnership Form 1065 with K15
Partnership Form 1065 with K1
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%
Line 1 Ordinary Income $_________
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.
Partnership Form 1065 with K18
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
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
10
Partnership K-1
Partnership Form 1065 with K111
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
12
Review Schedule E
Partnership Form 1065 with K113
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
14
1040
Partnership Form 1065 with K115
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
16
Review Schedule E
17
Now you need to review the K1…Partnership Form 1065 with K1
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
18
Partnership K-1
Partnership Form 1065 with K119
Partnership Form 1065 with K1
1065 Partnership
Line 22 Ordinary Income $_________
K1%
Line 1 Ordinary Income $_________
Schedule E page 2
Part II
Net Income $_______
1040
Line 17 Net Income Sch.E
*$_________
*Taxed at a personal rate
20
Check for trends or changes– Gross receipts – Cost of Good Sold– Gross Profit – Bottom line “Ordinary Income”
Partnership 1065
Partnership Form 1065 with K1 21
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.
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 7
Partnership 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.
24Partnership Form 1065 with K1
Income Analysis Form 1084-Section 7
Partnership 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
26Partnership Form 1065 with K1
Fannie Mae Selling Guide
27Partnership Form 1065 with K1
Fannie Mae Selling Guide
28Partnership Form 1065 with K1
Solvency and Liquidity
Partnership Form 1065 with K1 29
Acid Test or Quick Ratio
30Partnership Form 1065 with K1
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
Partnership Form 1065 with K1
Partnership Form 1065 with K1
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)
Partnership Form 1065 with K1
34
LiquidityGenerally Accepted Accounting Principles
Partnership Form 1065 with K1
(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
35Partnership Form 1065 with K1
$765 + 0 + 0 +0+0 = $765
$0 + $0+ $3,800 = $3,800
36
LiquidityGenerally Accepted Accounting Principles
Partnership Form 1065 with K1
Other Current Liabilities
37Partnership Form 1065 with K1
Is the business loan due in full?
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 7
Partnership Form 1065 with K1
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 7
Income Analysis Form 1084-Section 7
Partnership Form 1065 with K1
Balance Sheet
42Partnership Form 1065 with K1
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
43Partnership Form 1065 with K1
Do You Feel More Comfortable About Using The Guarantee Payment Now?
Quick Reference Guide Partnership K-1
44Partnership Form 1065 with K1
?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
Income Analysis Form 1084-Section 7
Partnership Form 1065 with K1
Now you need to review the 1065…
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
The statement must be reviewed to determine if “other deductions include amortization and/or casualty losses. None have been identified in this return.
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
The statement must be reviewed to determine if “other deductions include amortization and/or casualty losses. None have been identified in this return.
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
% of Ownership
Partnership Form 1065 with K1
Income Analysis Form 1084-Section 8
Partnership Form 1065 with K1
Income 1003
Partnership Form 1065 with K1
Did you feel comfortable using this borrower’s Guaranteed Payments as her qualifying income?
Genworth Underwriting Guidelines
57Partnership Form 1065 with K1
Genworth Rate Express®
Partnership Form 1065 with K1 58
LOS Connections
Partnership Form 1065 with K1 59
Partnership Form 1065 with K1 60
Training Tools and Information
Training Tools and Information
Partnership Form 1065 with K1 6161
62Partnership Form 1065 with K1
Additional MI Site Information
63Partnership Form 1065 with K1
ActionCenter®: 800 444.5664
Your Local Genworth Regional Underwriter
Your Genworth Sales Representative
Your Genworth Resources
64Partnership Form 1065 with K1
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