Posted by Kazi on April 30, 2009 at 11:57:01:
Kristine,
That was exactly my reason for not drawing to the max. I was like “nah, they are not going to do that to me.” I usually haven’t had much trouble getting financing because of good credit etc. etc. I think everyone in this business should go ahead and draw their LOC to the max if the money is going to be needed in the short term.
Kazi
Who is screwing up here? Bank or CPA? - Posted by Kazi
Posted by Kazi on April 28, 2009 at 08:00:38:
Or is it me? I have an unsecured business line of credit account with Chase. Recently they sent me an mail informing me that they are putting a block on this account for review purposes and wanted me to send them my 2008 business tax return.
I have an LLC and own couple of rental properties that I rehabbed last year, so what I sent them was my personal tax return with schedule E. Now Chase is demanding that I send them schedule C, but according my CPA all he needed to file for me is schedule E. I got a letter from the bank yesterday that they “are very interested” in providing me credit, but will be unable to do so unless I send them my business tax return with all the schedules, which I don’t have.
Now, I am confused and deadlocked here. I am not an accountant. Who is correct here? The bank or the CPA? The bank rep that I talked to even gave me unsolicited advice that I change my CPA as soon as possible! And the CPA thinks the people at the bank does not a clue what they are talking about! I tried to have the bank rep talk to my CPA, but she refused.
Thanks for any help with this.
Kazi
Re: Who is screwing up here? Bank or CPA? - Posted by JT-IN
Posted by JT-IN on April 29, 2009 at 14:53:17:
Bank doesn’t want to talk to CPA… Not much the bank queeen can say about if you have the CPA on conf call… Bank lady wants to talk to you because she assumes that she knows more than you. She doesn’t want to talk to CPA because she KNOWS that she is outmatched there.
I think what you are running into here is that the Bank wants to limit credit lines only to REAL businesses… IF you are NOT filing a business return, then you are NOT a business in their eyes, or at least one that is going to get credit from Chase.
Your CPA is right, you should start an S-Corp… and file an 1120S. Of course you can do exactly the same thing with your LLC, filing taxes as an S-Corp (pass-thru). You must first file some other form for your LLC before opting for the 1120S route… your CPA will know what that is.
Have CPA amend lat years return, opt for 1120S filings on LLC and shoot that to the Bank-Babe… They will likely up your credit line. hehe.
Talked to my CPA this morning - Posted by Kazi
Posted by Kazi on April 29, 2009 at 11:26:03:
Now he thinks that it is a possibility that the bank has a guideline against lending to those with schedule E given the current real estate market situation, but they are not telling us that. He wants me to call the bank, and ask them frankly if they have any such guideline. If that’s the case, he said he could provide me with a schedule C. He also suggests that I open up an S corp. going forward so that we can file a separate business return (I will have research the tax and other implications).
By the way, thanks to all you for responding. I really appreciate it.
Kazi
Re: Who is screwing up here? Bank or CPA? - Posted by Dave T
Posted by Dave T on April 29, 2009 at 10:49:33:
Kazi,
What kind of business did you tell the bank you had when you got the line of credit for your business?
Re: Who is screwing up here? Bank or CPA? - Posted by Natalie-VA
Posted by Natalie-VA on April 29, 2009 at 06:39:56:
This really blows. My LLC rental properties are also on schedule E. Consider your CPA correct and the banker wrong. You just need to figure out some way to get through to them.
–Natalie
Re: Who is screwing up here? Bank or CPA? - Posted by Ben T
Posted by Ben T on April 28, 2009 at 20:09:14:
Here’s a link to an IRS Publication regarding LLCs.
If you are a single member LLC, you could have used either schedule C
or schedule E or maybe both depending on what your activities were.
Chances are high that your CPA is correct. The bank rep knows
nothing about taxes. If you had rental properties you would have a
schedule E and a 1040.
What would bother me alot here though is that the CPA would not get
on the phone with the bank in a conference call. I’d give that another
shot. I’d also suggest that you get a supervisor at the bank, who may
know that single member LLC are just pass thru entities.
Ben
Re: Who is screwing up here? Bank or CPA - Posted by Kristine-CA
Posted by Kristine-CA on April 28, 2009 at 18:39:18:
He who holds the credit is king…this can’t be news to anyone. The
bank can ask for whatever they want, even if you weren’t supposed to
file it.
Honestly, if it were me and I believed that a good credit deal was
pending, I’d give them a schedule C. They have no way of knowing if
you filed it. You didn’t hear this from me. Kristine
Re: Who is screwing up here? Bank or CPA? - Posted by Kazi
Posted by Kazi on April 29, 2009 at 16:45:18:
JT,
I think you are absolutely right! A business without a business return is not business enough for them! I will run your idea by my CPA tomorrow. Thanks!
Re: Talked to my CPA this morning - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 05, 2009 at 03:29:18:
We periodically take care of this sort of thing with clients. It involves calling the bank and educating people. Usually works, some people are so thick that no one can help them. Correct answer is Schedule E…sometimes we get to the point where we tell the bank that they are asking us to break tax laws by filing wrong schedule. If you do decide to do a separate return, create a 1% corporate partner and file a partnership return. Putting rentals in an S-corporation can have a number of negative tax consequences.
John Hyre
Tax Attorney, Accountant, REI
Re: Who is screwing up here? Bank or CPA? - Posted by Kazi
Posted by Kazi on April 29, 2009 at 11:16:40:
I didn’t because I wasn’t asked! The lady who processed my application knew about it because she had helped other investors. I didn’t have to specify anything in writing. It was an extremely easy process (those good old days!). I was approved within 2 days.
Re: Who is screwing up here? Bank or CPA? - Posted by Dave T
Posted by Dave T on April 29, 2009 at 10:54:38:
Ben,
Kazi said “I tried to get the bank rep to talk to my CPA but she refused.”
It is a not clear who refused – I am guessing that it was the bank rep who refused.
Re: Who is screwing up here? Bank or CPA - Posted by Ben T
Posted by Ben T on April 28, 2009 at 19:45:40:
Bad idea. Giving them a form you didn’t file and representing that you
did? I’d call that bank fraud.
Ben
Bank or CPA? - Posted by JT-IN
Posted by JT-IN on April 30, 2009 at 02:15:20:
The other thing to consider here is, ALL banks have industry stats that show where problem areas in lending are surfacing. No surprise that many RE investors are falling by the wayside, and many banks either have, or are taking steps to limit their risk by profiling their credit risks. This may be part of it and may not, but simply be aware of this, and you likely are already.
RE investing in the eyes of the banking industry has been placed on par with “Fast Eddie” who approaches the banker for some cash because he has developed a new numbers system, that he can’t wait to use down at the Casino… and make a killing. The bank will only make the loan to Eddie if he has a biz return… 
Re: Talked to my CPA this morning - Posted by Kazi
Posted by Kazi on May 05, 2009 at 10:50:55:
Thanks for the info and advice.
Re: Who is screwing up here? Bank or CPA? - Posted by Kazi
Posted by Kazi on April 29, 2009 at 11:18:26:
Dave, you are correct. My CPA is eager to talk to them, but the bank does not want to deal with him.
Re: Who is screwing up here? Bank or CPA - Posted by Kristine-CA
Posted by Kristine-CA on April 28, 2009 at 19:57:53:
Of course it’s a bad idea to lie. The point is that the information can be
replicated on the Schedule C and it’s truthful. You can always amend the
return. My experience is that there is no arguing with the bank view on
this. They will stand by their understanding of what should have been
filed, even if it’s erroneous.
Re: Bank or CPA? - Posted by Kazi
Posted by Kazi on April 30, 2009 at 08:31:25:
I am aware that even if I manage to send them some sort of business return, chances of them letting me keep this credit account is pretty slim. About six months or so ago, I contacted the local branch lady who deals with the business LOC applications and asked her what I needed to do to apply for a credit line increase. Finding out that it was REI business, she advised me against it. She told me that there was a high chance that not only they (the underwriters) would not approve a credit line increase, but they might close down the account all together!
Re: Who is screwing up here? Bank or CPA - Posted by Ben T
Posted by Ben T on April 28, 2009 at 20:14:36:
Personally I wouldn’t put my rental real estate (if that’s what he had) on
a schedule C incorrectly, amend the return and file it, to satisfy the
bank. I’d rather get my CPA involved with the bank, perhaps a bank
supervisor. My guess is you just need to go up the hierarchy
somewhat at the bank to find someone who is somewhat more
knowledgeable about taxes.
Ben
Available credit vs. utilized credit - Posted by JT-IN
Posted by JT-IN on April 30, 2009 at 11:11:16:
Kazi:
The best way to maintain a LOC is to use it. In these last 6 to 8 months where banks have been stressed, some folks have drawn their credit lines to the max so as to avoid losing the access to the funds. Once the credit line is drawn it is difficult for them to close your line. The negotiation becomes more on a level playing field at that point.
(info for future use)