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Just out of curiosity, what are other tax pros seeing in terms of requests from mortgage lenders? And how are you responding for your self-employed clients?

I have one self-employed client that recently asked me for what amounts to a compiled financial statement. I did that, but it wasn't good enough for the underwriters. They want me to say that what is on the financial statement matches what is reported on the tax return. Can't they look at the two and compare the numbers for themselves?

In this case, I refused, as all I see is potential liability for me.

--Peter
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Just out of curiosity, what are other tax pros seeing in terms of requests from mortgage lenders?

You might want to check out the Yahoo Group tax professionals. There was an extensive discussion of this issue within the last 6 months IIRC.

Phil
Rule Your Retirement Home Fool
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You might want to check out the Yahoo Group tax professionals.

Will do. Thanks for the referral.

--Peter
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(Peter:)I have one self-employed client that recently asked me for what amounts to a compiled financial statement. I did that, but it wasn't good enough for the underwriters. They want me to say that what is on the financial statement matches what is reported on the tax return. Can't they look at the two and compare the numbers for themselves?

I had that happen a while back, and it wasn't self-employed either; they wanted an interim financial statement for a wholly-owned S-Corp. They DID accept the personal and corp. tax returns for the 2 prior full years. (We don't do financial statements for the corp. as a general thing for this client.) Part of the problem, in their mind, was that this guy's income items (Sub-S income, distributions, C-Corp dividends, and salary - all from the same corp. - had fluctuated quite a bit in the previous years) Well, that wasn't accidental, either; we had him pay out his accumulated E&P one year, thinking it might be the last chance to do it at a 15% rate. That was a one-time thing.

In this case, I refused, as all I see is potential liability for me.
Didn't feel I had that luxury; and it wasn't really a challenge or a problem. Just an extra piece of work, and the client knew it was required by the lender, so he didn't mind paying (at least he didn't protest to us!)

And from what I hear, there will be more of this, as the problem of "liar loans" was especially notorious among self-employed and other small business owners. If you can show a W-2 and current pay stub, you're a lot more believable these days. Even one of the partners in our firm did a refinancing lately, and had to come up with the firm's financial statements. They wouldn't take just his tax return and K-1.

Bill
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I also refuse to do them. There have been discussions on several boards that I participate in and everyone seems to agree that they lenders are just looking for someone to blame when / if all this blows up again. I would check with your E&O insurance and see if they cover it. One individual did and they were informed that their insurance did not cover those letters.

Dusty
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Just out of curiosity, what are other tax pros seeing in terms of requests from mortgage lenders? And how are you responding for your self-employed clients?
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Update, as a coincidence - I just got a request from a Major Bank in our city for a letter on behalf of a client who is a partner in the largest law firm in the state; and a relatively junior "income" partner, who makes about $250K, all guaranteed payments. The "equity partners" get a good bit more.

Anyway, they desperately needed a letter from me, on our firm's letterhead, saying that this guy is who he says he is, and that we've done his tax returns for X years, and that he really is a partner in that law firm, and he owns the other business interest that he owns.

They already got copies of the returns directly from the client - that's a whole other rigamarole that makes me mad, getting signed releases every time a client wants to refinance or something.

I guess my saying so makes it true.

Bill
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As a self-employed person, I appreciate this discussion. I am in the process of choosing a tax person and I guess I better find one who is willing to send what I need if I refinance or buy anything.
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As a self-employed person, I appreciate this discussion. I am in the process of choosing a tax person and I guess I better find one who is willing to send what I need if I refinance or buy anything.

I wouldn't be so quick to use that as a criterion in your search. The reason that many tax professionals are not willing to prepare/submit such statements is that they are being asked to attest that what they prepare is a faithful representation of reality. They don't know that. They only know that what they prepared is a faithful representation of the information that the taxpayer provided them. False statements submitted on a mortgage application constitute fraud. If a tax professional submits a financial statement and the statement is later determined to be "wrong", that professional will be involved in a legal mess even if the financial statement accurately represented all the data the professional was aware of.

Ira
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