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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

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 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

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

Liquidity

Generally 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 Sheet

Quick 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

Liquidity

Generally 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

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

54Partnership Form 1065 with K1

Genworth Rate Express®

Partnership Form 1065 with K1 55

LOS Connections

Partnership Form 1065 with K1 56

Partnership Form 1065 with K1 57

Training Tools and Information

Training Tools and Information

Partnership Form 1065 with K1 5858

59Partnership Form 1065 with K1

Additional MI Site Information

60Partnership Form 1065 with K1

➢ ActionCenter®: 800 444.5664

➢ Your Local Genworth

Regional Underwriter

➢ Your Genworth Sales

Representative

Your Genworth Resources

61Partnership Form 1065 with K1

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accuracy, we also know that any discussion of laws and their application to particular facts is subject to

individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is

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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