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I would like to better understand Form 4797. I am looking at a 2006 tax return and it has $150,000 for Line 6 "Gain from Line 32, from other than casualty or theft".
I flip the page to Part III of Form 4797 and see that my borrower sold an apartment building for a gain of $150,000. Should I include this income? My gut says yes. My borrower's business is real estate, so I would say this practice will happen more than once.
If you have my 1040 manual, you’ll find the discussion about Schedule D (2006 page 2-30 through 2-35) helpful. Whether reported on a Schedule D or a Form 4797, gain/loss from a real estate transaction is just that, *taxable* gain or loss.
I understand company financial statements are often reviewed or compiled. We generally ask for compiled. But there are also unaudited, unqualified and audited. Please explain their hierarchy and all their subtle differences. Can one or more be used in place of compiled?
There are three basic choices and subsets within them.
Can I use the 'Self-employment earnings (loss)' on Line 14 (A) of the 1065 K-1 as cashflow?
Wouldn't that be great!?! However, if you do, you are likely double-counting income/cashflow.
With our emphasis on retaining and building lending relationships, how can I frame my questions so I don't offend our long-time borrowers?
Every loan request is an opportunity to create, retain or lose a valuable lending relationship. The questions you ask and the way that you ask them, may determine which you accomplish.
Should we ever use capital gains income? My senior lender says we do not underwrite based on conversion of assets, only on income.
I had the opportunity recently to witness a fairly heated debate between the President of a Bank and the Loan Review Team from the holding company. Yes, voices were raised and neither side was backing down.
Do I have to ask about and get documentation for cashflow that I do not need to qualify my borrower?
Another way to ask this question is "When is enough, enough?"
When you have enough to qualify with wages, business income and the usual sources do you have to get info on alimony, capital gains, notes receivable and the like?
It depends. (Don't you just hate that answer????)
What is 'Nominee' income and how do I treat it?
Ignore the expense and the associated income.
Whenever a person gets reported income that is really not theirs, they can report it on their tax return as nominee income. This happens more often in the interest income section. For example, your mother has a savings account and you she adds you to it. The bank accidentally puts you as the primary and sends you the 1099 for your mother's interest income.
How long can a business show a loss? Aren't there some rules about hobby losses?
You have seen it...a business that really looks like a hobby, or a tax dodge. When is a business really a business even if running losses? And can we ever safely ignore a business loss?
A simple, general rule is that if the business makes a profit in 3 of 5 years there will be a presumption of profit motive. For horse-racing, it is 2 of 7 years. Don't you wonder what lawmaker owned horses?
For a company that does not meet the presumption of profit motive, the IRS takes a closer look.
Why are tax returns and financial statements for the same year sometimes so different?
There are legitimate differences between tax return and financial statement presentation of the same underlying facts.
I can understand why a taxpayer wants to show pass-through losses. But why would they show income?
A lender recently asked why the borrower would report a POSITIVE figure from a pass-through, which would require they pay more taxes. The prior two years they had passed through losses on their 1040 Schedule E. Her query ended with the note: "I am not quite sure about the Sch E Pass-Throughs, could you shed some light???"
It's time to open up that Partnership/Corporation manual and read the first couple of pages in the Partnership and S Corporation sections. Owners of pass-through entities (partnerships, LLCs, SCorporations) must include in their personal return on Schedule E their share of the taxable income or loss...whichever it is.
