Tax Question: Anyone pumped up AGI for a Re-Fi and later ammend??

Question

Hi, I am trying to refinance out of a bridge loan and am pushing to meet the mark on income. My CPA suggested I use my W2 and my Rental Income and basically not claim much if any of the tens of thousands in expenses that I incurred in the Rehab process.

He says I will have to pay Uncle Sam a pretty penny up front, but that I can then take my 2 years of tax statements and get the refinance done. After the refinance is approved I can ammend the taxes to reflect my original rehab expenses (repairs etc.) and get a lot of my tax money back.

Does anyone know about this strategy? My family says it sounds like a questionable way to operate, and I agree it's not ideal for the long-term, but I just got started 2 years ago and need to find-or-figure a way out of this bridge loan. Any thoughts, comments, experiences??

You guys are the best!!!!

Basit Siddiqi · Answer

@Sean RuggieroIf your CPA suggested this, you should report him to the State Board so his license can be revoked.You are signing the return that it is complete and accurate, it is fraud to complete a return incorrectly with the intention of getting approved for loans.

Russell Brazil · Answer

Your accountant is basically advocating for mortgage fraud.

In 2016 (just happened to be the year I could find) the average penalty for a mortgage fraud conviction was 22 months in prison.  There were only 339 convictions....so it is rare, but the risk is high. Federal prosecutors have something like a 98% conviction rate on all crimes, so if they try you, your basically getting 22 months in prison.

What is more concerning here is that your CPA would offer this as a suggestion. What other illegal or unethical activities are they not just recommending, but possibly even participating in?

David M. · Answer

@Sean Ruggiero

In my layman's opinion, that sounds like straight up fraud...  Good luck...

Aaron Zimmerman · Answer

Agreed with the advice on here (not your accountant). Whatever your income and expenses are is what they are. Of course, you'd want to do some tax planning to see how to raise your income legally (i.e. work more hours at your job, opting out of bonus depreciation for assets <20 years, etc).

Caroline Gerardo · Answer

Be ready for the audit, save every receipt

Sean Ruggiero · Answer

Interesting responses from everyone, thank you all. I tried to reply some time ago but for some reason it didn't go through. After finding out this is not the legitimate way to go, even though you could get away with it, I decided just to declare everything 100% legitimately.

On the upside, talking about the rehab, these are usally one-time expenses that can be added back in by the lender, which is cool and also only fair in my opinion.

Anyway, thanks everyone again for helping me figure this out. It will be nice proceeding with a clear conscionce!

Rick Pozos · Answer

What you CAN do is do your taxes the right way. Lenders always add back in the depreciation on your properties. They know if you show a loss on your return that you are not living on negative income. If there were a few big expenses, maybe you can show that they were capital expenditures and will not be recurring.

If you income seems too low, go to a different lender. Maybe one that will do a stated loan. OR one with different loan standards that will not weigh so heavily on your income. You will pay a higher rate, but it will be lower than what you are paying now.

Matt Devincenzo · Answer

You're focused on the legality of not declaring your expenses to the IRS, I guess in theory you're correct. Not declaring expenses to the IRS and paying 'too much' in taxes isn't always 'fraud' (in your I didn't declare charity example) since you're just not getting as much as is due to be returned to you. It is however an issue when you use what you know to be incorrect accounting so you can obtain financing. You're conspiring to de-fraud your lender, since you are presenting them an inaccurate picture of your finances.

Also it sounds like part of your issue is your rehab costs and expenses. First I'd find a new accounting advisor that is honest, and second I'd discuss with them how to legally classify expenses that may be better for your refinance. For instance if your lender 'adds back' depreciation then you're likely better off ensuring as much of your costs as possible are added to your basis, and not expensed. Usually you want to expense anything you can, but maybe there is an opportunity to shift some costs to help your financing picture while still filing your taxes honestly.

Rogelio M. · Answer

@Sean Ruggiero ... in Texas, the suggested strategy, would be a crime committed against the lender ... proceed with caution and obtain alternative sources of advice.

Consider alternative sources of private financing to take you out of the bridge loan.

Best luck!

Sean Ruggiero · Answer

Yikes. It sounded so much better the way the CPA explained it! Well that’s why I’m coming to you guys for advice too!

What I gathered from the CPA is that when you owe the IRS money you are required to declare it, but when the IRS owes YOU money it is at your discretion to declare. That’s why the IRS waives all the late fees and penalties when they owe you money I thought, because they only care when it’s the other way around…

So in other words, if you donate to charity, it’s optional to declare, but if you earn income, it’s mandatory to declare, I thought.I guess what you guys are saying is that this may not be the case. So if you lost that receipt for a charitable contribution 8 months ago (hypothetically)- that would actually be illegal? Given your comments I will look into this a little closer, thanks.

Tax Question: Anyone pumped up AGI for a Re-Fi and later ammend??

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