I have a client that wants me to do a balance sheet for his Schedule C business so that he can refinance his mortgage. The numbers he gave me over the phone show a remarkable increase in his profit margin compared to what he normally gives me for his tax return. Is there any liability on my part for doing a balance sheet for him? It won't be filed with the IRS for his tax return, so what is the harm?
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Fraud?
You seem skeptical about the numbers your client wants you to put down. Is there a possibility your client is trying to get you to help him commit fraud? Either by understating taxable income on the tax return, or overstating taxable income to the mortgage company, or maybe both?
Preparing a balance sheet goes along with many tax engagements. But you can be putting yourself in a world of hurt if a balance sheet you prepared based on client-provided information is relied on by a third party. Turn the tables. Let's say you loaned someone a few hundred thousand dollars based on a balance sheet. Let's say the borrower defaulted and you were out all that money. Would you go after the person who prepared the balance sheet? You bet you would, because you'd be hiring an attorney and they'd be all over the person who prepared the balance sheet.
First of all get an engagement letter signed by the client. You should have an engagement letter for all services anyway. Make sure the client's on the hook for knowing that your work only relates to the preparation of the tax return. If you do a balance sheet, Page 1 needs a statement in no uncertain terms that the information is not to be relied upon by any third party.
This is the kind of thing that takes down accountants more than anything else.
Unless of course you have audited the client, and you are qualified and licensed to provide assurance as to the accuracy of the financial position of the company. -
Balance Sheet
Forget the balance sheet and other documentation.
Have your client apply for a Stated Income Loan or No Income Verification Loan. It is great for those taxpayers that are self employed.
They only pay a slight percentage more on the rate. Hopefully the client has a decent FICO score.
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