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Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved. Tax Return Review - S Corp Income Form 1120S with K1 Tax Return Series April 2019

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Page 1: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.

Tax Return Review -S Corp Income Form 1120S with K1Tax Return SeriesApril 2019

Page 2: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

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

– W2– 1120S K1 Review (Section 9)– 1120S Review (Section 10)– Solvency/Liquidity Test

1120S Corp with K1

Page 3: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1

Tax Forms-

Page 4: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

www.new.mi.Genworth.com

1120S Corp with K1

Page 5: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

You’ll Need Calculators-

1120S Corp with K1

Page 6: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Fannie Mae’s 1084

1120S Corp with K1‏6

Page 7: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1

The Case Study…The Case Study Mark E Fitt

Mark is 100% owner is a 1120S Corp.

His reported taxable Income is a W2 & K1 from Life Fitt Equipment, Inc

Page 8: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1040

1120S Corp with K1

Page 9: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

2018 W2

91120S Corp with K1

Is the borrower Self Employed?

Page 10: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Schedule 1?

101120S Corp with K1

Page 11: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Review 1040 Schedule 1

1120S Corp with K1‏11

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.

Page 12: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Review Schedule E

12

Now you need to review the K1…1120S Corp with K1‏

Page 13: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S K-1

1120S Corp with K1‏13

X X

Page 14: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

SEB W2

141120S Corp with K1

2018

*

* Verify the ability to use the total taxable compensation

Page 15: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Form 1120S Corporate Return

1120S Corp with K1‏15

S Corporation‏– Can be Owned by One Person – “Managing Shareholder” Must Receive a Salary – Business Income Reported on Form 1120S– Income Reported on Form 1040’s

• Schedule E• Could also be W-2 wages or 1099 income

– All Shareholders of an S Corp are Issued K-1’s – K-1s are Attached to the S Corp Tax Return (IRS Form 1120S)

Advantages‏– Taxed on Personal Basis

• S Corp pays No Tax on Income– Liability Limited to Amount Invested

Disadvantages‏– Limited to 100 Shareholders

Page 16: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1‏

1120S Corp

Line 21 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

Page 17: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Check for Trends or Changes‏– Gross receipts – Cost of goods sold– Gross profit – Bottom line “Ordinary Income”– W-2 wages

• Were these paid to borrower?

17

S Corps

1120S Corp with K1

Page 18: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1‏

1120S Corp

Line 21 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

Page 19: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S K-1

1120S Corp with K1‏19

Page 20: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1‏

1120S Corp

Line 21 Ordinary Income $_________

K1%

Line 1 Ordinary Income $_________

Schedule E page 2

Part II

Net Income $_______

1040Schedule 1

Line 17 Net Income Sch.E

*$_________

*Taxed at a personal rate

20

Page 21: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Review 1040 Schedule 1

1120S Corp with K1‏21

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.

Page 22: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Review Schedule E

22

Now you need to review the K1…1120S Corp with K1‏

Page 23: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 9

1120S Corp 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.

20182018

Page 24: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Analyzing K1’s & Business Returns

241120S Corp with K1

Fannie Mae 2019 Selling Guide B3-3.3-07, Income or Loss Reported on IRS Form 1065 or 1120S, Schedule K1 (06/28/2016)

Page 25: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Liquidity

251120S Corp with K1

Fannie Mae 2019 Selling Guide B3-3.3-07, Income or Loss Reported on IRS Form 1065 or 1120S, Schedule K1 (06/28/2016)

Page 26: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Fannie Mae Selling Guide

261120S Corp with K1

Page 27: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Less than 25% Ownership

271120S Corp with K1

Page 28: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Solvency and Liquidity

1120S Corp with K1‏ 28

Page 29: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Acid Test or Quick Ratio

291120S Corp with K1

Page 30: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp 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

30

Page 31: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Review for Solvency/Liquidity

The forth page of the 1120S Return is a Balance Sheet (Schedule L)

1120S Corp with K1‏

Page 32: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

(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:

321120S Corp with K1

Page 33: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

33

LiquidityGenerally Accepted Accounting Principles‏

1120S Corp with K1

Page 34: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Other Current Liabilities

341120S Corp with K1

Is the Credit Card balance due in full?

Is the Credit Line balance due in full?

Is the business loan due in full?

Page 35: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 9

1120S Corp with K1‏

Page 36: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1‏

Income Analysis Form 1084-Section 9

Now you need to review the 1120S…

Page 37: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 38: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 39: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 40: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 41: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 42: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 43: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 44: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084-Section 10

1120S Corp with K1‏

Page 45: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Income Analysis Form 1084

1120S Corp with K1‏

Page 46: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Genworth Underwriting Guidelines

461120S Corp with K1

Page 47: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Genworth Rate Express®

1120S Corp with K1 47

Page 48: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

LOS Connections

1120S Corp with K1 48

Page 49: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

1120S Corp with K1 49

Training Tools and Information

Page 50: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

Training Tools and Information

1120S Corp with K1 5050

Page 51: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

511120S Corp with K1

Additional MI Site Information

Page 52: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

521120S Corp with K1

ActionCenter®: 800 444.5664

Your Local Genworth Regional Underwriter

Your Genworth Sales Representative

Your Genworth Resources

Page 53: Review of S Corp Tax Return Presentation...Review 1040 Schedule 1 1120S Corp with K1 11 Review Line 17 to determine if a Schedule E has been filed this does NOT automatically prove

531120S Corp with K1

Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for‏accuracy, 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.

,GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED‏INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.

Genworth Mortgage Insurance Offers A Comprehensive Suite Of Training Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your

Borrowers Better. Visit mi.genworth.com To Learn More.

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