SOURCE: Marks Paneth & Shron LLP

Marks Paneth & Shron LLP

January 10, 2011 09:56 ET

GAAP and Income Tax Basis Accounting Often Yield Very Different Financial Reporting Results

Real Estate Companies Must Understand and Choose Best Method, According to Real Estate Partner Susan H. Nadler at Marks Paneth & Shron

NEW YORK, NY--(Marketwire - January 10, 2011) - Susan H. Nadler, CPA, a partner at accounting firm Marks Paneth & Shron LLP, has published an article on why it is critical for real estate companies that issue financial statements to understand the differences between income tax basis financial reporting and US Generally Accepted Accounting Principles (GAAP). The article is found in the Winter 2011 issue of the Real Estate Finance Journal.

As Ms. Nadler explains, GAAP reporting would be required if the real estate entity is a public company, such as a publicly-traded REIT, and would likely be required by institutional investors who are partners in a private real estate company. But when the entity's choice of accounting method is not dictated by governing bodies, real estate owners should be aware that income tax basis financials might be a more useful management tool and provide greater transparency and insight into how the business is performing.

In the article, Ms. Nadler discusses:

  • Why real estate companies feel compelled to use GAAP -- even when they don't have to.
  • How impairment charges affect both GAAP and income tax basis reporting
  • Allocation of purchase price for income-producing real estate
  • Rent holidays, rent step-ups and prepaid rents
  • Related party transactions
  • Organization costs incurred in forming a business such as legal fees and accounting costs

The full text of Ms. Nadler's article, "Understand the Differences Between US GAAP Versus Income Tax Basis Accounting, Then Choose the Option That's Best for Your Company" is found online at the Marks Paneth & Shron Library.

To speak with Ms. Nadler about real estate financial reporting methods, please contact Itay Engelman of Sommerfield Communications at 212.255.8386 or via email at itay@sommerfield.com.

About Marks Paneth & Shron

Marks Paneth & Shron LLP is an accounting firm with nearly 475 people, of whom 64 are partners and principals. The firm provides businesses with a full range of auditing, accounting, tax, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services and energy clients.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in JHI, the leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world.

Marks Paneth & Shron LLP, whose origins date back to 1907, ranks among the 35th largest firms in the nation and is the 13th largest in the New York area. In addition, readers of the New York Law Journal rank MP&S as one of the area's top forensic accounting firms.

Its headquarters are in Manhattan. Additional offices are in Westchester, Long Island and the Cayman Islands. For more information, please visit www.markspaneth.com.

About Susan H. Nadler

Susan H. Nadler, CPA, is a Partner at Marks Paneth & Shron LLP. She has been practicing public accounting since 1989. Ms. Nadler has extensive experience serving the real estate industry and works with many of New York City's leading developers, owners, operators and investors providing accounting, attest, consulting and tax services. Her broad background includes preparing and auditing certiorari filings, special purpose financial statements and operating escalations; performing due diligence on major real estate acquisitions and mezzanine lending arrangements and preparing and reviewing complex cash flow models and financial projections.

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