In our K-1 Pass Through Entity Series, we get questions that sound simple but are actually a big deal in underwriting.

Here is one we hear more often than people admit:

Ask the Experts: What should I do if I do not get a K-1?

The short answer is not complicated.

Ask again.

If your request is a requirement, treat it like a requirement. A borrower saying, “I do not have it,” is often not refusal. It is confusion.

And there are a few predictable reasons why.

Why borrowers think they do not have K-1s

Many borrowers, especially 1040 filers, genuinely believe they never received a K-1 because they do not see it in the tax return they are holding.

A K-1 is not part of the 1040 packet the way they think about it.

It is a supporting document tied to the 1065 or 1120S and is used to prepare the return, but it is not necessarily attached to the 1040 they sign and keep.

Linda’s comparison is a good mental model:

A borrower can receive a 1099 from the bank, use it to complete Schedule B, but not attach the 1099 to the return. Same idea. The K-1 was used, but it is not sitting in the 1040 file.

So when the borrower says, “I do not have it,” what they may mean is:

“I do not know where it is.”

And someone does have it. Often the tax preparer.

Step one: Ask again, but ask clearly

When you request K 1s, be specific:

• Ask for all K-1s tied to the borrower for the years requested

• If they do not have them, ask them to request them from their tax preparer

• If they are unsure what you mean, explain: “The K-1 gives more detail about your pass-through income and distributions and is issued by the partnership or S corp. I want to make sure you are getting credit for all of your sources of cash.”

This is not nitpicking. It is how you validate cash flow and global analysis.

If you are lending to the entity, K-1s drive guarantor decisions

When you lend to a pass through entity, K-1s often help answer questions like:

• Who owns what percentage

• Who is taking distributions

• Who should be considered for guarantees

• What needs to be included in a global cash flow analysis

And here is an easy to miss point Linda raised that matters in real underwriting:

The distribution wash only works if everyone guarantees

If everyone guarantees, distributions out of the entity and distributions into guarantors can wash in the global.

But if not everyone guarantees, you can accidentally misstate cash flow unless you do two things:

1. Subtract all distributions at the entity level

2. Add back the distributions received by the guarantors you are actually analyzing

If you are lending to the owner, guidelines decide what you can skip, but judgment decides what you should

Many institutions have guidelines like:

• only require K-1s above a certain ownership percentage

• only require full entity returns in certain cases

• treat low percentage ownership as less relevant

Those rules exist for speed and standardization.

But underwriting reality is messier.

So the better question becomes:

When is it dangerous to skip the K-1?

Here are three situations from the discussion where skipping is risky.

1) Non-passive involvement

Passive vs non passive is an IRS term that confuses everyone.

But the underwriting translation is useful:

• Non passive often means active involvement, decision making, checkbook control

• Those are the people most likely to influence the cash and take on obligations

• Those are the K-1s you do not want to ignore

• Passive often means they are more like a silent investor

2) Higher ownership percentage

A larger owner can influence how cash moves, whether that is distributions, salaries, or reinvestment.

That matters if you are lending to the individual and relying on that cash flow to service debt.

3) General partners

If it is a general partnership, liability can be unlimited.

And here is the underwriting punchline from Linda:

Even a minority owner general partner can be liable for debts.

That alone is enough to justify asking for more information.

The biggest reminder: the numbers can look small but the obligation might not be

Even when guidelines say you can ignore “small” K-1 items, remember:

K-1 income numbers are taxable allocations. They do not automatically reflect the cash obligation or the debt burden of that entity.

A small K-1 number does not guarantee a small risk.

That is why “skip it because it is small” can backfire if you are not thinking about what is behind the curtain.

So what should you do if you do not get the K-1?

Use this simple decision path:

1. Ask again and direct them to their preparer

2. Know your guidelines for what can be skipped

3. Do not skip non-passive activity if you can avoid it

4. Pay extra attention to general partners and any situation where the borrower may be liable beyond what the K-1 appears to show

5. If the story does not make sense, do not be afraid to request the broader entity return, especially on business lending