Bukers Taxanalysis

Section 461(l) Explained: Excess Business Loss Rules for Lenders and Cash Flow Analysis

Charlie Buker — Mon, 30 Mar 2026 18:13:25 +0000

Section 461(l) Explained: Excess Business Loss Rules for Lenders and Cash Flow Analysis

Introduction

Have you ever come across something called a “Section 461(l) excess business loss adjustment” on an individual tax return and wondered what it is? We recently received a call on the Bukers Hotline about this item and whether it should be included in cash flow.

On this week’s cash flow article, let’s explore what a Section 461(l) adjustment is and how it impacts cash flow analysis for lenders.

Facts and Circumstances

On the call, the analyst noted that the borrower had several income-producing activities that were generating negative cash flow. At the same time, there was a significant source of income exceeding $1 million that the analyst noticed on Form 1040, Schedule 1, Line 8p – Section 461(l) excess business loss adjustment.

The analyst’s question to us – can they treat that income as cash flow for the borrower? The analyst added that the inclusion of this income to cash flow would help significantly in getting the loan approved.

What is a Section 461(l) excess business loss adjustment in the first place?

The Section 461(l) excess business loss adjustment is a tax instrument that was introduced with the Tax Cuts and Jobs Act of 2017 and was extended by the OBBB Tax Law update of 2025. Its job is to limit an individual taxpayer’s ability to offset their non-business income (e.g., salaries, interests, dividends, etc.) with various business losses from Schedule C, Schedule E, and Schedule F.

When the limitation was originally introduced, the applicable thresholds began at $250,000 for single taxpayers and $500,000 for taxpayers who are married filing jointly. These thresholds have been indexed for inflation and currently are:

Single – $305,000
Married Filing Jointly – $610,000

This limitation is commonly referred to as the excess business loss limitation under Section 461(l).

Let’s summarize this in plain English

A single or married taxpayer is limited to the amount of business losses from Schedules C, E, and F that they can deduct. Any losses they incur in a single year exceeding the applicable threshold are disallowed for tax purposes and are carried over to future years, similar to net operating losses.

Helpful Example – 461(l) Adjustment in practice

Let’s add a quick example to help illustrate the application of a Section 461(l) loss adjustment.

Say we have a married couple of borrowers named Dan and Jane Loaning. Dan runs the family farm and reports income and loss on Schedule F. Jane runs a coffee shop and reports income and loss on Schedule C.

Since they are married, both business activities are reported on their joint tax return. As it turns out this year, Dan and Jane both had a rough business year.

Here is the breakdown:

$250,000 – Schedule C Loss
$460,000 – Schedule F Loss
Total business loss = $710,000

The excess of their business losses over the applicable threshold is $100,000 ($710,000 – $610,000 =$100,000) which is disallowed for the current year. On the next year’s return, Dan and Jane can carry forward the $100,000 of disallowed losses to offset future taxable income.

On their current year’s income tax return, the $100,000 of disallowed losses will show up on Form 1040, Schedule 1, Line 8p – Section 461(l) excess business loss adjustment. It is presented as a positive number that looks a lot like income at a first glance. However, its role is solely to add back the disallowed losses reported from business activities exceeding the applicable threshold.

The 461(l) loss adjustment is not in any way, shape, or form cash flow to the borrower. It is merely a tax instrument designed to adjust taxable income unfavorably to disallow excess losses from Schedules C, E, or F. If it were counted as a part of cash flow, it would drastically overstate cash flow for the borrower.

It is imperative that Form 1040, Schedule 1, Line 8p, is ignored in arriving at cash available for debt service.

What happens on the following year’s return?

On their following year’s tax return, Dan and Jane Loaning will recognize their 461(l) excess business loss carryforward as if it were a net operating loss. The amount will be reported as an NOL carryforward and directly offset any taxable income.

We must ignore the effects of any NOLs since we accurately account for cash flow in the given year. Any inclusion of the effects of an NOL carryforward will result in double-counted cash flows. Therefore, we can simply ignore the effects of the 461(l) carryforward in the following year.

Key Takeaway for Lenders

A Section 461(l) adjustment is not cash flow. It is a tax limitation that disallows excess business losses and must be excluded from borrower cash flow analysis.

Concluding Thoughts

This question called in to our Bukers Hotline is a great example of how certain items on a tax return can look like income, but they are not true cash flow to the borrower. Paying careful attention to the cash flow nature of these unique items helps inform the lending decision and can protect the financial institution from signing off on a risky loan.

Learn More

Would you like to learn more about complex situations like this? Check out our Bukers Academy today! The online self-study training course for cash flow analysis covers all sorts of complex topics similar to the one explored in this article. Feel free to email us at support@taxanalysis.com or call us at 503-520-1303 for more information!

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Tax-Exempt Interest Income from Pass-Through Entities

Charlie Buker — Mon, 23 Feb 2026 16:47:54 +0000

Tax-Exempt Interest Income from Pass-Through Entitles

Have you ever encountered an unusually large dollar amount on an individual’s tax return that made you stop and think twice? Recently, an analyst had this situation occur and called in to the Buker’s Hotline for assistance. On this month’s cash flow article, let’s explore their scenario and the appropriate cash-flow adjustments required.

Unusual Tax-Exempt Interest Income

The analyst explained that their borrower reported over $500,000 of tax-exempt interest income on line 2a on their Form 1040. Their tax return did not have much other activity, and prior years’ returns did not show similar amounts of tax-exempt interest income. To make things worse, since tax-exempt interest income is not listed on Schedule B, the analyst had no clue where this large potential cash inflow was coming from. The analyst’s perspective was understandable – they felt that the $500,000 of tax-exempt interest income seemed random, as if it came from nowhere. Without the historical support, the analyst felt this potential cash inflow raised some red flags worth investigating.

Support Found on Schedule K-1

To make sense of this situation, we looked to see if there were any supporting statements related to the significant tax-exempt interest income reported on the tax return. Since tax-exempt interest income is not reported on Schedule B, we had to find alternative sources of documentation to learn more. As luck would have it, there was a supporting schedule attached to the end of the return that broke down the total interest income reported by the individual during the year. We were able to see on that schedule that the tax-exempt interest income was actually passing through to the borrower’s return from their Form 1065 Schedule K-1.

The income was earned by the borrower’s partnership and passed through to the individual’s return based on their ownership percentage of the partnership entity. This means that the $500,000 of tax-exempt interest income was pass-through income that was being reported on the individual’s return for tax purposes only. More importantly for our cash flow analysis, that tax-exempt interest income represents “paper income” that we do not include in our borrower’s cash flow figures.

Pass-Through Income/Loss comes in all shapes and sizes!

This unusual example of high tax-exempt interest income is a great reminder that items of pass-through income and loss can come in many different forms. Typically, tax-exempt interest income is related to an individual’s holdings of municipal bonds or other tax-exempt investments. In this case, the borrower had no historical precedent for such a high figure for tax-exempt interest income, so it made sense that this was being passed through by the borrower’s partnership.

We don’t typically think of tax-exempt income being an item that would be passed through by a partnership or S Corporation, but it is certainly possible. The analyst was correct to say that “something felt off” regarding the large tax-exempt interest income. The extra steps we took ensured they did not erroneously overstate the borrower’s cash flow available to service debt.

If you are a Bukers software user and you ever come across a similar situation where you, as the analyst, feel as if something doesn’t quite feel right with the borrower’s tax return, feel free to call the Bukers Hotline. Our team of CPAs is ready and happy to help you with any questions that may arise within the spreading process.

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Notes in Bukers Software

Christy Otis — Mon, 23 Feb 2026 07:29:31 +0000

Notes in Bukers Software

Having notes in your spreads can be important. Let’s say you have encountered an unusual situation in your borrower’s financials. You might want to add a note to the spread explaining the situation as a reminder to yourself or to inform others who may review the spread.

But when opening a file, how do you know if there are notes associated with the spread?

Notes in Bukers Taxanalysis

There are several different places you can put notes in Bukers Taxanalysis. You have a notes button at the bottom right of the main screen, and you can also add notes to each schedule and principal debt service screens.

How do you tell if a line item in Bukers Taxanalysis has a note associated with it? You can print or view a report, but there is an easier way to tell. If a note has been entered, the word

“Notes …” on the button will be in red text.

If there is not a note, it will be black text.

Notes in Bukers BTA

In Bukers BTA, there is one place to enter notes. The notes button looks like a green notebook at the top of your screen on the toolbar.

If it has a star on it, there is a note inside.

Now, if you want to check for notes quickly, you know what to look for!

As always, if you ever have a question about how to use the Bukers software, help is just a phone call or email away. Feel free to give us a call with any software related questions at (503) 520-1303 or email support at support@taxanalysis.com.

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Capital Gains and Losses: Recurring or Non-recurring?

Charlie Buker — Wed, 07 Jan 2026 18:06:39 +0000

Capital Gains and Losses: Recurring or Non-recurring?

The other day, an analyst called in to the Bukers Hotline asking about some items that were reported on their individual borrower’s Schedule D. They wanted to know whether their borrower’s capital gain was recurring or non-recurring, and what the associated cash flow adjustments should be. On this week’s cash flow article, let’s review the facts and circumstances, and help the analyst with their cash flow analysis.

Facts and Circumstances

The best way to determine whether capital gains and losses are recurring or non-recurring in nature is to get a detailed understanding of the facts and circumstances surrounding the transaction. The more information that you, as the analyst, can garner, the more successful you will be in this situation.

Our analyst told us that their individual borrower was operating a sole proprietorship whose primary activity was purchasing and developing real estate. The capital gain in question was related to the sale of a truck during the year. The borrower held the truck for several years and sold it for a gain of about $5,000.

Immediately, we already are given a wealth of valuable information that can help us make our decision. Often, capital gains or losses are more likely to recur in future years if they are directly related to a main source of cash flow to the borrower. In this case, our borrower’s main source of cash flow is their sole proprietorship related to flipping houses, but this is unrelated to the sale of a long-held personal asset, like their truck. With this information, we are already headed down the track of a non-recurring capital gain.

Historical Analysis

At this point in the call on the Bukers Hotline, our CPA asked the analyst if the borrower had any capital gains or losses recognized on the past couple of years’ worth of tax returns. The analyst responded that there were no other capital gains or losses recognized in the two preceding tax return years. This additional context lets us know that our borrower does not have a history of reporting cash inflows related to capital gains. Since they don’t have any historical capital gains, we feel even better about our assertion that this year’s capital gain is likely non-recurring in nature.

Conclusion and more!

Our ultimate recommendation to the analyst is that their borrower’s capital gain for the current tax year, related to the sale of their truck for a $5,000 gain, is likely to be non-recurring in nature. To arrive at this recommendation, we combined the current year’s facts and circumstances with the borrower’s historical performance, both of which contributed to the same conclusion. As a result of this, the appropriate cash flow treatment would be to not include this gain or return of capital in cash flow available to service debt.

This situation called in to our Bukers Hotline was a great example of how the recurring nature of capital gains and losses can affect cash flow analysis. Would you like more information about this topic, and beyond? Check out our Bukers Academy Online training course. We walk enrollees step-by-step through the entire analysis related to Schedule D, and everything else under the umbrella of individual tax return analysis. We use hundreds of examples to cement ideas and cover even the most complex topics.

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Outside Net Worth in the Bukers Taxanalysis PFS Module

Christy Otis — Wed, 07 Jan 2026 06:15:45 +0000

Outside Net Worth

In the Bukers Taxanalysis PFS Module

When spreading personal financial statements from a client, do you ever find the asserted values over-inflated? The net worth that is calculated when you spread the client’s personal financial statement into the Bukers Taxanalysis software is the client’s perception of his/her net worth. Is that the same as the lender’s perception of net worth? Probably not, so Bukers created an Outside Net Worth line item in the Personal Financial Statements (PFS) module. This allows you to adjust the client’s perception of his/her net worth and create the lender’s perception of net worth.

Automated Adjustments

Once you have spread your client’s personal financial statements, scroll down to Statement 21 in the PFS module to begin working on their outside net worth. Then, click on the magnifying glass for the year you would like to adjust.

The first line shows the Net Worth per the Personal Financial Statement (PFS). This is the client’s perception of their net worth. The software then starts adjusting out the ‘fluff’ through automated adjustments for the following items:

Assets:

Nonlisted Stocks & Bonds – if they are not publicly traded, what is the true ascertainable value?
Notes Receivable From Related Parties – is that note from the nephew actually collectable?
50% of IRA/Keogh/Other Retirement Account Balances – if you have to go after that, you may lose half to taxes and penalties.
Investments in Closely Held Businesses – what is the true value?
Personal Property – do you really want a jet ski as collateral?
Other Assets – do you actually want to include those miscellaneous assets in the client’s net worth?

Liabilities:

Notes Payable to Related Parties

Making Custom Adjustments

If you’d like to make additional custom adjustments to your borrower’s net worth calculation, the software has two places where you can make these adjustments – one in the Assets section and the other in the Liabilities section. Simply go to “Other Adjustments” in one or both of these sections and click on the magnifying glass. This allows you to enter the adjustment and the value you want to give that item. Click “Add to List” and the adjustment will populate at the top of the screen. Enter as many adjustments as you need, the software will add those adjustments together and adjust the Outside Net Worth accordingly.

When finished, click the OK button to return to the PFS Recap screen. To see the results of the Outside Net Worth adjustments on Total Assets and Total Liabilities, take a look at the Key Balance Sheet Information at the bottom of the recap screen for Adjusted Assets and Adjusted Liabilities, as well as other pertinent information.

If you have any questions or would like to discuss this section, please feel free to give us a call at 503.520.1303 or submit your question online.

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Medicaid Waiver Payments on Form W-2: What Lenders Should Know

Charlie Buker — Fri, 07 Nov 2025 21:06:10 +0000

Medicaid Waiver Payments on Form W-2: What Lenders Should Know

An analyst recently called into the Bukers Hotline with a unique situation. A borrower, who hadn’t yet filed their 2024 tax return, submitted their 2024 W-2 for cash flow analysis. When spreading the salary information directly off the W-2, the analyst noticed that the amount in Box 1 was significantly lower than what was reported in prior years. The analyst also noticed a large amount in Box 12 with the accompanying code “II”, noting that there was no amount in Box 12 in prior years. The analyst asked us, “What does all of this represent? And what is my true cash flow for the borrower?”

Let’s dig a little deeper to help the analyst on this month’s cash flow article.

Medicaid Waiver Payments

On a borrower’s W-2, if Box 12 contains code “II”, that means that our borrower received Medicaid waiver payments excluded from gross income. Back in 2014, guidance was released by the IRS regarding the federal tax treatment of income earned by caregivers in specific situations. For a caregiver who tends to a sick individual and receives Medicaid waiver payments as compensation for their caregiving, they may be allowed to exclude that income from federal taxation. To qualify for this tax-exempt treatment of the income earned, the caregiver must reside in the same home as the sick individual, along with some other criteria.

So, How Does It Cash Flow?

The cash flow implications of Medicaid waiver payments are relatively straightforward. The income that is tax-exempt and reported in Box 12 with code “II” on the borrower’s W-2 should be added to cash flow. Medicaid waiver payments are a form of income that is exempt from federal taxation, yet still cash earned by the individual and needs to be treated accordingly for cash flow analysis.

What if our borrower had given the analyst their tax return instead of a Form W-2? Well, the taxable portion of W-2 wages would be reported on Form 1040, Line 1a. The nontaxable portion, comprised of these Medicaid waiver payments, could be reported in a couple of areas on our borrower’s tax return. They could be listed on either Form 1040, Line 1d, or they could be reported on Form 1040, Schedule 1, Line 8s. The difference is a preference of the borrower and tax preparer based on whether they want to take the earned income credit or not. This is simply presentational and does not affect cash flow. The analyst would add these amounts representing nontaxable Medicaid waiver payments to cash flow, regardless of where they are reported on Form 1040.

Concluding Takeaways

The main takeaway as an analyst is, if your borrower is a caregiver, be aware that a portion of their income earned from that profession has the potential to be tax-exempt. If their wages reported on Line 1a of Form 1040 decrease drastically from their historical performance, check your borrower’s return for any listing of nontaxable wages from Medicaid waiver payments, either listed on Form 1040 Line 1d or on Schedule 1, Line 8s. These amounts might need to be added to your borrower’s wages to arrive at total cash flow for wages earned.

This is another great example of a situation where it is helpful to have a solid understanding of the facts and circumstances governing your borrower’s day-to-day life. Since our analyst was aware that the borrower worked as a caregiver for their relative, it was easy to deduce why the rule for tax-exempt income in this situation applied. At Bukers, we always recommend that our clients get to know their borrowers, and the ins and outs of their sources of cash inflow and outflow.

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Projections in Bukers BTA – Part II

Christy Otis — Thu, 06 Nov 2025 13:47:00 +0000

Projections in Bukers BTA - Part II

Customizing Your Projections

In our last Inside Bukers newsletter, we talked about using the Projections module in Bukers BTA Pro to generate a projection. This time we will talk about customizing your projection.

There are several things you can do to customize your projections. You can change the projection variables as well as most of the values on the projected balance sheet and income statement. This ability gives you the opportunity to create an unlimited number of projection scenarios. Here’s how:

After you have generated your projection, you will notice that the background on the left side is yellow. This is your historical data. The right side of the screen is white and contains your projected data. This is the data you will change to customize your projection.

Making Changes on the Projection Variables Screen

On the right side of the screen, click the projected variable you want to change, then enter your value. Once you are finished making changes to the projection variables, click the “Next” button at the bottom of the screen. Your balance sheet and income statement will automatically be recalculated based on your changes.

Making Changes on the Balance Sheet and Income Statement Screens

Most projected values on the balance sheet and income statement can be changed. To make a change, click the value you want to change, then enter your new value. To recalculate your balance sheet and income statement, click the “recalculate” button. This button looks like two arrows that form a circle and can be found at the top of your screen. This will not only update the totals but will also balance the balance sheet and reconcile your retained earnings.

Let’s say you want to try out different scenarios and save them to look at later. To do this:

Begin a new projection.
Give it a name that represents the changes you plan to make.
Generate your projection.
Make your changes and recalculate.
Click the “Finish” button to save your projection.

Do this for each scenario you want to create. You can create an unlimited number of projection scenarios.

Projections are so quick and easy to generate and customize. Give it a try and let us know what you think! If you have questions about using our software or want to schedule a complimentary training session, please give us a call at (503) 520-1303.

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Paid Family Leave – How is it Reported on a Tax Return?

Charlie Buker — Thu, 04 Sep 2025 08:44:03 +0000

Paid Family Leave

How is it Reported on a Tax Return?

An analyst reached out to us recently on the Bukers Hotline with a question about the Family and Medical Leave Act (FMLA) and how it may affect their borrower’s cash flow. The borrower told the analyst that their W-2 wages were going to appear lower than expected on Page 1 of their tax return, but in reality, their salary remained consistent to historical performance. The analyst asked us, “how could this be possible?” Let’s help them out on this week’s cash flow article.

Paid Family Leave - State Intervention

Did you know that more and more states are starting to adopt policies that mandate paid family leave for employees? Let’s back up for a second. The federal law for family and medical leave (under the FMLA) is that employers must allow employees up to 12 weeks of unpaid leave per year to allow for bonding time with newborns or being a caregiver for a family member with a serious medical issue. This law mandates companies to continue these individuals’ health insurance policies and ensures that their positions will remain unfilled during this time.

Certain states have intervened and added another clause to this federal policy which also mandates that employees continue to receive salaries, or at least a portion thereof, during this family leave period. These are considered “Mandatory Participation” states, including Washington, New York, California, Oregon, and others. For states with mandatory paid family leave, employees and employers have a portion of their wages withheld each pay period that goes towards funding this state program. When employees take their family leave, they continue to earn a salary, except it is paid by the state rather than the employer.

So how does it cash flow? What adjustments should we make?

Well, in short, this continues to cash flow the same as it normally would. The borrower still receives their entire salary, it just comes from two different sources – the state government pays them for up to 12 weeks of the year, and their employer pays them for the rest of the year. For cash flow analysis, we simply need to know where to look in our borrower’s documentation to substantiate the flow of cash to the individual. The portion of salary paid by their employer will continue to be reported in Box 1 of the borrower’s W-2, which will then flow to Line 1a on Form 1040. Nothing new so far.

The portion of salary paid to the borrower from the government (pursuant to the state’s rules on FMLA) may be reported on a Form 1099-G issued to the borrower. From there, it will likely flow to Form 1040, Schedule 1, Line 7 – Unemployment compensation. State rules vary, so you may alternatively see this amount reported on Schedule 1, Line 8 – Other income. For cash flow purposes, we can consider that amount to be a component of salaries and wages and ensure that it is added to our borrower’s cash flow.

Voluntary Participation States

There are a handful of other states that have adopted similar policies designed to ensure that employees continue to earn their wages during family leave, however it is paid from a participating insurance company rather than the state itself. These are considered “Voluntary Participation” states and include Tennessee, Texas, and Florida, amongst others.

The cash flow implications for these states would be similar to mandatory participant states, except the family leave portion of wages is coming from the insurance company rather than the state government. Because of this, the borrower will not receive a Form 1099-G. Be on the lookout for alternative forms of documentation, such as a Form 1099 or equivalent, issued by the private insurer to the borrower.

Best Practices

So, what are our key takeaways? First off, as an analyst, ensure that you are taking into account all of the facts and circumstances of a borrower’s day-to-day life. If they recently had a child, take a minute to consider that they may have received state benefits via paid family leave. If their W-2 wages for the year seem lower than historical average, you may want to ask them if they received a Form 1099-G, and you can also keep a lookout for unemployment compensation to be reported on Schedule 1 of Form 1040. In some cases, your borrower may not know to give you a heads up of the paid family leave, so understanding the different ways income flows to a borrower’s tax return is crucial in arriving at the most accurate cash flow figure.

If your institution uses the Bukers software and you ever come across a difficult tax return spreading dilemma, feel free to call the Bukers Hotline at 503-520-1303. Our team of CPAs is standing by and ready to help work through any tax return question you may have while performing cash flow analysis.

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Projections in Bukers BTA – Part I

Christy Otis — Wed, 03 Sep 2025 07:34:00 +0000

Projections in Bukers BTA - Part I

The projections module in Bukers BTA is a powerful tool that lets you select from 4 different methods and generate up to 5 years of projections for your borrower. Plus, you can generate as many as you’d like for each borrower. Once generated, you have the ability to customize the variables used and change most of the projected balance sheet and income statement values. Best of all, they take a matter of seconds to generate!

In this 2-part article, we’ll show you:

Part 1: How to run a basic projection from start to finish.

Part 2: How to customize the results.

Let’s get started!

Starting a Projection

To begin make sure you have your borrower file open, then click the “Projections” button at the top of your BTA screen. On the “List of Projections” screen click the “Add New” button, then type in a name for your projection. Since you can generate as many projections for your borrower as you’d like, you should give each a name that will help you identify it later. Click the “OK” button and the next screen will open.

Make Your Selections

On the left of this screen, you’ll see a list of the statements spread in your borrower file. Select the statements you want to use to generate the projected data. Next, select the projection method you want to use. A description of each method along with the number of historical statements needed are included on this screen.

The projection method choices are:

Current Selected Historical Data
Historical Average
Weighted Average
Exponential Smoothing

The final selection is for the number of periods you want to project out. Once you have made your selections, click “Next.”

Projection Variables

This will take you to the “Projection Variables” screen. This screen lists all the variables used to generate a projection. You will notice one section with a yellow background and one with a white background. The section with the yellow background shows the variables calculated using your borrower’s historical data. The variables in the white section are generated based on your historical data in conjunction with the projection method you chose on the previous screen. These are the variables that will be used to generate your projected balance sheet, income statement, and cash flow statement.

To move on to the balance sheet click the “Next” button.

The Projected Statements

Notice at the top of the screen there are buttons to switch between the projection variables, balance sheet, income statement, and custom cash flows.

Similar to the projection variables screen, the balance sheet, income statement, and custom cash flow screens all have a section with a yellow background and a section with a white background. The yellow section is your borrower’s historical data and the white section is the projected data based on your selections.

Generating Reports

Looking back at the top of the screen there is a button with a white sheet of paper and magnifying glass. This is the reports button. When you click on the reports button, you’ll see most of the same reports that you are used to seeing in the main BTA reports generator. These include all 6 cash flow reports, ratio reports, and cash driver adjustments. You can select the reports you want to see as well as designate which historical and projected years you want to include.

When you are done generating reports and are back to the main projections screen, you can either click on the “Finish” button at the top of the screen to save your projection, or “Cancel” which will not save your projection. Clicking either one of these buttons will return you to the “List of Projections” screen. Click “Exit” to return to the main BTA screen.

Next time we’ll talk about customizing your projections. As always, if you have any questions about using our software or would like to schedule a complimentary training session, please don’t hesitate to give us a call at (503) 520-1303.

The post Projections in Bukers BTA – Part I appeared first on Bukers Taxanalysis.

GILTI as Charged: How to Cash Flow Global Intangible Low-Tax Income

Charlie Buker — Thu, 17 Jul 2025 23:16:18 +0000

GILTI as Charged

How to Cash Flow Global Intangible Low-Tax Income

We recently received a call on the Bukers Hotline from an analyst who was spreading a prospective borrower’s individual tax return and noticed some unusual sources of income. The analyst told us that they received Form 8992 and Form 5471 along with the tax return package submitted by the borrower. Their question to us was – what is this income and how does it affect my borrower’s cash flow? In this week’s cash flow article, we are going to investigate the cash flow implications of GILTI (Global Intangible Low-Taxed Income).

What is GILTI (Global Intangible Low-Taxed Income)?

GILTI is a relatively new tax concept that was added as a component of the 2017 Tax Cuts and Jobs Act (TCJA). The tax law addition requires individuals with a 10% or greater share in certain foreign companies (referred to as “CFCs” – Controlled Foreign Corporations) to pay US tax on income derived from certain types of intangible assets held by the CFCs. The term “GILTI” is used to describe the type of foreign intangible income upon which this new tax is imposed. Individuals will report their GILTI on Form 8992 and they would also file Form 5471 to register their ownership with the CFC to the IRS.

How does GILTI Cash Flow?

The analyst who brought this question to the Bukers Hotline asked us during our conversation, “Do I need to make any adjustments to include the income reported on Form 8992 to cash flow?”. Our direct answer to them was, “No,” but let’s explain why.

For all intents and purposes, we can treat income reported on Form 8992 as if it were being reported on Page 2 of Schedule E and therefore ignore it from cash flow. Like the reporting of flow-through income/(loss) reported on Page 2 of Schedule E, the income reported on Form 8992 is simply for tax purposes and does not reflect any true cash flow received from the CFC. It is merely reported on Form 8992 so that it can then flow to Schedule 1 of Form 1040 and be included in the borrower’s AGI, so they then must pay tax on the income. This is another good example of why we never begin our cash flow analysis using AGI as a starting point. Any cash flow implications to our borrower with respect to the CFC would likely be presented as distributions on a Schedule K-1 received or as dividends listed on our borrower’s Schedule B.

This was a great question from our analyst, and it helps illustrate the importance of keeping current with new tax acts as they arise. As tax legislation is passed by new administrations, tax return packages may be directly affected. At Bukers, our team of CPAs updates our products annually to ensure that we account for all cash flow implications of new tax laws and legislation, so that you don’t have to. Stay posted to our Bukers newsletters going forward as we will continue to cover tax law changes and their effects on cash flow analysis.

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