Tax Return Review- Partnership Income Form 1065 with K1... · Form 1065 / Partnership Return Five pages long. First page follows the typical tax form pattern: –Income listed, deductions

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Tax Return Review-

Partnership Income Form 1065 with K1

Tax Return Series‏

February 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…



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 relying‏

on future sales or its ability to meet its near term obligations

.Rule of thumb: $1.00 to $1.00; then the Co. is considered liquid‏

Important: What is the industry standard?

As the ratio gets smaller, paying bills becomes more difficult and a cash‏

withdrawal 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

Liquidity

Generally Accepted Accounting Principles‏


(Cash #1 + Acct Receivable #2 + #4+ #5 +Other Current Assets #6)

(Acct Pay. #15 + MNB #16 + Other Current Liabilities #17)

Balance Sheet

Quick 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

Liquidity

Generally Accepted Accounting Principles‏


Other Current Liabilities


Is the business loan due in full?











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 55

LOS Connections



Training Tools and Information

Training Tools and Information



Additional MI Site Information


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➢ Your Local Genworth

Regional Underwriter

➢ Your Genworth Sales

Representative

Your Genworth Resources


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not a substitute for advice of counsel. You should always check with your own legal advisors for

interpretations of legal and compliance principles applicable to your business.

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Documents

Tax Return Review- Partnership Income Form 1065 with K1... · Form 1065 / Partnership Return Five pages long. First page follows the typical tax form pattern: –Income listed, deductions