UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----------------------------------------------------------------------------------------

Commission
  File Number: 333-62526

COMMONWEALTH INCOME & GROWTH FUND IV

(Exact name of registrant as specified in its charter)



| | Pennsylvania(State or other jurisdiction ofincorporation or organization) |  | 23- 3080409(I.R.S. Employer Identification Number) | 
| | ------------------------------------------------------------------------- |  | -------------------------------------------------- | 

Brandywine Bldg. One, Suite 200

2 Christy Drive

Chadds Ford, PA 19317

(Address, including zip code, of principal executive offices)

(610) 594-9600

(Registrants telephone number including area code)

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (ii) has been subject to such filing requirements for the past 90 days: YESNO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large
          accelerated filerAccelerated filerNon-accelerated
          filer


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)      YESNO






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FORM 10-Q

September 30, 2006

TABLE
  OF CONTENTS



PART IItem
          1.


      

        Condensed Financial Statements

        3Item 2.

        

        Managements Discussion and Analysis of Financial Condition and Results of Operations

        13Item 3.

        

        Quantitative and Qualitative Disclosures About Market Risk

        17Item 4.

        

        Controls and Procedures

        17PART IIItem 1.

        

        Legal Proceedings

        17Item 1 A.

        

        Risk Factors

        18Item
          2.

        

        Unregistered
          Sales of Equity Securities and Use of Proceeds.

        20Item
          3.

        

        Defaults
          Upon Senior Securities

        20Item
          4.

        

        Submission
          of Matters to a Vote of Securities Holders

        20Item
          5.

        

        Other
          Information

        20Item
          6.

        

        Index
          to Exhibits

        20Signatures

        20Certifications


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Commonwealth
  Income & Growth Fund IV

Condensed
  Balance Sheets



September
          30,2006
      
      December
          31,2005(unaudited)AssetsCash
          and cash equivalents
      
      $
      486,042
      
      $
      891,708Lease
          income receivable, net of reserves of $260,937 as of September 30, 2006
          and December 31, 2005
      
      
      252,706
      
      
      180,993Other
          receivables  other affiliated partnerships
      
      
      30,672
      
      
      22,684Other
          current assets
      
      
      4,757
      
      
      1,319774,177
      
      
      1,096,704Computer
          equipment, at cost
      
      
      11,770539
      
      
      14,103,160Accumulated
          depreciation
      
      
      (7,279,284
      )
      
      (7,161,684
      )4,491,255
      
      
      6,941,475Equipment
          acquisition costs and deferred expenses, net
      
      
      113,279
      
      
      220,786Other
          receivables - Commonwealth Capital Corp
      
      
      207,834
      
      
      206,132Prepaid
          acquisition fees
      
      
      74,045
      
      
      91,671395,158
      
      
      518,589Total
          Assets
      
      $
      5,660,590
      
      $
      8,556,768Liabilities
          and Partners CapitalLiabilitiesAccounts
          payable, primarily for equipment purchases
      
      $
      101,643
      
      $
      102,254Accounts
          payable  General Partner
      
      
      53,496
      
      
      39,628Unearned
          lease income
      
      
      40,734
      
      
      119,720Notes
          payable
      
      
      1,007,045
      
      
      1,653,066Total
          Liabilities
      
      $
      1,202,918
      
      $
      1,914,668Partners
          CapitalGeneral
          partner
      
      
      1,000
      
      
      1,000Limited
          partners
      
      
      4,456,672
      
      
      6,641,100Total
          Partners Capital
      
      $
      4,457,672
      
      $
      6,642,100Total
          Liabilities and Partners Capital
      
      $
      5,660,590
      
      $
      8,556,768


see accompanying notes to condensed financial statements

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Commonwealth Income & Growth Fund IV

Condensed Statements of Operations



Three months EndedSeptember 30

        

        Nine Months EndedSeptember 302006

        

        2005

        

        2006

        

        2005(unaudited)

        

        (unaudited)IncomeLease

        

        $

        699,839

        

        $

        1,247,392

        

        $

        2,501,099

        

        $

        3,766,826Interest and other

        

        

        13,021

        

        

        2,461

        

        

        23,748

        

        

        3,019Total income

        

        

        712,860

        

        

        1,249,853

        

        

        2,524,847

        

        

        3,769,845ExpensesOperating, excluding depreciation

        

        

        148,075

        

        

        98,930

        

        

        544,166

        

        

        421,099Equipment management fee - General Partner

        

        

        36,023

        

        

        62,370

        

        

        126,086

        

        

        188,341Interest

        

        

        15,573

        

        

        25,749

        

        

        57,160

        

        

        84,349Depreciation

        

        

        780,140

        

        

        906,692

        

        

        2,441,870

        

        

        2,752,193Amortization of equipment acquisition costs and deferred expenses

        

        

        39,859

        

        

        53,648

        

        

        138,193

        

        

        163,614Loss on sale of computer equipment

        

        


      20,694

        

        


      87,697

        

        


      278,762

        

        


      163,280Total expenses

        

        

        1,040,364

        

        

        1,235,086

        

        

        3,586,237

        

        

        3,772,876Net income (loss)


      

        $

        (327,504


      )

        $

        14,767


      

        $

        (1,061,390


      )

        $

        (3,031


      )Net income (loss) allocated to limited partners

        

        $

        (331,247

        )

        $

        11,022

        

        $

        (1,072,594

        )

        $

        (14,270

        )Net (loss) per equivalent limited partnership unit

        

        $

        (0.44

        )

        $

        (0.01

        )

        $

        (1.43

        )

        $

        (0.02

        )Weighted Average number of equivalent limited partnership units outstanding during the period

        

        

        749,400

        

        

        749,950

        

        

        749,400

        

        

        749,950


see accompanying notes to condensed financial statements

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Commonwealth Income & Growth Fund IV

Condensed Statements of Partners Capital

For
  the nine months ended September 30, 2006

(unaudited)



GeneralPartnerUnits

        

        LimitedPartnerUnits

        

        GeneralPartner

        

        LimitedPartner

        

        TotalPartners capital - December 31, 2005

        

        50

        

        749,400

        

        $

        1,000

        

        $

        6,641,099

        

        $

        6,642,099Net income (loss)


      


      

        


      


      


      


      11,203


      


      


      (1,072,594


      )


      


      (1,061,391


      )Distributions

        

        

        

        

        

        

        (11,203

        )

        

        (1,111,833

        )

        

        (1,123,036

        )Partners capital  September 30, 2006

        

        50

        

        749,400

        

        $

        1,000

        

        $

        4,456,672

        

        $

        4,457,672


see accompanying notes to condensed financial statements

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Commonwealth Income & Growth Fund IV

Condensed Statements of Cash Flow

For the nine months ended September 30, 2006 and 2005



2006

        

        2005(unaudited)Net cash provided by operating activities

        

        $

        779,080

        

        $

        1,719,735Investing activities:Capital expenditures


      


      

        (487,808


      )


      

        (324,613


      )Prepaid acquisition fees

        

        

        17,625

        

        

        (1,818

        )Net proceeds from sale of computer equipment

        

        

        440,861

        

        

        225,284Equipment acquisition fees paid to General Partner

        

        

        (28,451

        )

        

        (36,633

        )Net cash (used in) investing activities

        

        

        (57,773

        )

        

        (137,780

        )Financing activities:Redemptions


      


      


      


      


      


      (17,825


      )Distributions to partners

        

        


      (1,123,036

        )

        


      (1,123,927

        )Other receivable, Commonwealth Capital Corp

        

        

        (1,702

        )

        

        19,949Debt Placement fee paid to the General Partner

        

        

        (2,235

        )

        

        (8,110

        )Net cash (used in) financing activities

        

        

        (1,126,973

        )

        

        (1,129,913

        )Net (decrease) increase in cash and cash equivalents

        

        

        (405,666

        )

        

        452,042Cash and cash equivalents, beginning of period

        

        

        891,708

        

        

        719,161Cash and cash equivalents, end of period

        

        $

        486,042

        

        $

        1,171,203


see accompanying notes to condensed financial statements

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NOTES TO CONDENSED FINANCIAL STATEMENTS



1.
      Business
      Commonwealth
          Income & Growth Fund IV (the Partnership) is a limited
          partnership organized in the Commonwealth of Pennsylvania on May 15,
          2001. The Partnership offered for sale up to 750,000 units of the limited
          partnership at the purchase price of $20 per unit (the Offering).
          The Partnership reached the minimum amount in escrow and commenced operations
          on July 8, 2002 and was fully subscribed on September 15, 2003.
        The
          Partnership uses the proceeds of the Offering to acquire, own and lease
          various types of computer information technology equipment and other
          similar capital equipment, which will be leased primarily to U.S. corporations
          and institutions. Commonwealth Capital Corp, (CCC), on behalf
          of the Partnership and other affiliated partnerships, will acquire computer
          equipment subject to associated debt obligations and lease agreements
          and allocate a participation in the cost, debt and lease revenue to
          the various partnerships based on certain risk factors.
        The
          Partnerships General Partner is Commonwealth Income & Growth
          Fund, Inc. (the General Partner), a Pennsylvania corporation
          which is an indirect wholly owned subsidiary of CCC. Approximately ten
          years after the commencement of operations, the Partnership intends
          to sell or otherwise dispose of all of its computer equipment, make
          final distributions to partners, and to dissolve. Unless sooner terminated,
          the Partnership will continue until December 31, 2012.2.
      Summary
          ofSignificantAccountingPolicies
      Basis
          of Presentation
        The
          financial information presented as of any date other than December 31,
          2005 has been prepared from the books and records without audit. Financial
          information as of December 31, 2005 has been derived from the audited
          financial statements of the Partnership, but does not include all disclosures
          required by generally accepted accounting principles. In the opinion
          of management, all adjustments, consisting only of normal recurring
          adjustments, necessary for a fair presentation of the financial information
          for the periods indicated have been included. For further information
          regarding the Partnerships accounting policies, refer to the financial
          statements and related notes included in the Partnerships annual
          report on Form 10-K for the year ended December 31, 2005. Operating
          results for the nine-month period ended September 30, 2006 are not necessarily
          indicative of financial results that may be expected for the full year
          ended December 31, 2006.


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Long-Lived
          Assets
        The
             Partnership evaluates its long-lived assets when events or circumstances

          indicate that the value of the asset may not be recoverable. The Partnership
             determines whether an impairment exists by estimating the undiscounted

          cash flows to be generated by each asset. If the estimated undiscounted
             cash flows are less than the carrying value of the asset then an
            impairment
          exists. The amount of the impairment is determined based on the difference
             between the carrying value and the fair value. The fair value is
            determined
          based on estimated discounted cash flows to be generated by the asset.
             For the nine month period ended September 30, 2006, the Partnership

          determined that the carrying amount of certain assets was greater than
             the undiscounted cash flows to be generated by these assets. For
            the
          three months and nine months ended, the Partnership recorded charges
             of $68,000 and $156,000, respectively, to record the assets at their

          estimated fair value. Such amounts have been included in the depreciation
             expense in the accompanying financial statements. No adjustment
            was
          needed at September 30, 2005.Depreciation
          on computer equipment for financial statement purposes is based on the
          straight-line method over estimated useful lives of four years.Net
          Income (Loss) Per Equivalent Limited Partnership Unit
        The
          net income (loss) per equivalent limited partnership unit is computed
          based upon net income (loss) allocated to the limited partners and the
          weighted average number of equivalent units outstanding during the period.3.
      ComputerEquipment
      The
          Partnership is the lessor of equipment under operating leases with periods
          ranging from 12 to 42 months. In general, the lessee pays associated
          costs such as repairs and maintenance, insurance and property taxes.
        Through
          September 30, 2006, the Partnership has only entered into operating
          leases. Lease revenue is recognized on a monthly basis in accordance
          with the terms of the operating lease agreements.
        Remarketing
          fees are paid to the leasing companies from which the Partnership purchases
          leases. These are fees that are earned by the leasing companies when
          the initial terms of the lease have been met. The General Partner believes
          that this strategy adds value since it entices the leasing company to
          stay with the lease for potential extensions, remarketing
          or sale of equipment. This strategy potentially minimizes any conflicts
          the leasing company may have with a potential new lease and will potentially
          assist in maximizing overall portfolio performance. The remarketing
          fee is tied into lease performance thresholds and is factored in the
          negotiation of the fee. Remarketing fees incurred in connection with
          lease extensions are accounted for as operating costs.


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Remarketing fees incurred in connection with the sale of computer equipment
          are included in our gain or loss calculations. For the nine month period
          ended September 30, 2006 and 2005, remarketing fees were incurred in
          the amounts of $10,000 for both periods.

        The
          Partnerships share of the computer equipment in which they participate
          at September 30, 2006 and December 31, 2005 was approximately $1,380,0000
          and $1,188,000 respectively, which is included in the Partnerships
          fixed assets on their balance sheet. The total cost of the equipment
          shared by the Partnership with other partnerships at September 30, 2006
          and December 31, 2005 was approximately $3,993,000 and $2,667,000 respectively.
          The Partnerships share of the outstanding debt associated with
          this equipment at September 30, 2006 and December 31, 2005 was $42,000
          and $137,000, respectively. The total outstanding debt at September
          30, 2006 and December 31, 2005 was $82,000 and $266,000, respectively.The following is a schedule of future minimum rentals on noncancellable operating leases at September 30, 2006:




AmountThree Months ended December 31, 2006


      


      $


      563,731Year Ended December 31, 2007

        

        

        1,172,480Year Ended December 31, 2008

        

        

        260,896Year Ended December 31, 2009

        

        

        30,907$

        2,028,014




4.
      Related
          PartyTransactions
      Receivables/Payables
        As
          of September 30, 2006, the Partnerships related party receivables
          and payables are short term, unsecured, and non-interest bearing.Other
          Receivables
        As
          of September 30, 2006, the Partnership has an unsecured, non-interest
          bearing receivable from CCC, a related party to the Partnership, in
          the amount of approximately $208,000, which primarily originated in
          2003. CCC, through its indirect subsidiaries, including the General
          Partner of the Partnership, earns fees based on revenues and new lease
          purchases from this fund. CCC intends to repay these receivables, through
          acquisition fees, debt placement fees and reimbursement of expenses,
          with a minimum amount of $12,500 per quarter, which commenced in the
          quarter ending March, 2004. During the quarter ended September 30, 2006,
          CCC reimbursed $6,000 to the Partnership.Reimbursable
          Expenses
        The
          General Partner and its affiliates are entitled to reimbursement by
          the Partnership for the cost of supplies and services obtained and used
          by the General Partner in connection with the administration and operation
          of the Partnership from third parties unaffiliated with the General
          Partner. In addition, the General Partner and its affiliates are entitled
          to reimbursement for certain expenses incurred by the General Partner
          and its affiliates in connection with the administration and operation
          of the Partnership. During the nine months ended September 30, 2006
          and 2005, the Partnership recorded $486,000 and $254,000, respectively,
          for reimbursement of expenses to the General Partner.


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Equipment
          Acquisition Fee
        The
          General Partner is entitled to be paid an equipment acquisition fee
          of 4% of the purchase price of each item of equipment purchased as compensation
          for the negotiation of the acquisition of the equipment and lease thereof
          or sale under a conditional sales contract. During the nine months ended
          September 30, 2006 and 2005, equipment acquisition fees of approximately
          $28,000 and $37,000, respectively, were earned by the General Partner.Debt
          Placement Fee
        As
          compensation for arranging term debt to finance the acquisition of equipment
          by the Partnership, the General Partner is paid a fee equal to 1% of
          such indebtedness provided however that such fee shall be reduced to
          the extent the Partnership incurs such fees to third parties, unaffiliated
          with the General Partner or the lender, with respect to such indebtedness
          and no such fee will be paid with respect to borrowings from the General
          Partner or its affiliates. During the nine months ended September 30,
          2006 and 2005, debt placement fees of approximately $2,000 and $8,000,
          respectively, were earned by the General Partner.Equipment
          Management Fee
        The
          General Partner is entitled to be paid a monthly fee equal to the lesser
          of (i) the fees which would be charged by an independent third party
          for similar services for similar equipment or (ii) the sum of (a) two
          percent of (1) the gross lease revenues attributable to equipment which
          is subject to full payout net leases which contain net lease provisions
          plus (2) the purchase price paid on conditional sales contracts as received
          by the Partnership and (b) 5% of the gross lease revenues attributable
          to equipment which is subject to operating and capital leases. During
          the nine months ended September 30, 2006 and 2005, equipment management
          fees of approximately $126,000 and $188,000, respectively, were earned
          bythe
          General Partner.


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Equipment
          Liquidation Fee
        With
          respect to each item of equipment sold by the General Partner (other
          than in connection with a conditional sales contract), a fee equal to
          the lesser of (i) 50% of the competitive equipment sale commission or
          (ii) three percent of the sales price for such equipment is payable
          to the General Partner. The payment of such fee is subordinated to the
          receipt by the limited partners of the net disposition proceeds from
          such sale in accordance with the Partnership Agreement. Such fee will
          be reduced to the extent any liquidation or resale fees are paid to
          unaffiliated parties. During the nine months ended September 30, 2006
          and 2005, equipment liquidation fees of approximately $15,000 and $8,000,
          respectively, were earned by the General Partner.5.
      Notes
          Payable
      Notes
          Payable are secured by specific computer equipment and are nonrecourse
          liabilities of the Partnership. Aggregate maturities of notes payable
          for each of the periods subsequent to September 30, 2006 are as follows:




September 30,2006


      

        December 31,2005Installment notes payable to banks; interest ranging from 4.76% to 6.00%, due in monthly installments ranging from $155 to $22,902, including interest, with final payments due in January through December 2006.


      


      $


      5,672


      


      $


      $261,002Installment notes payable to banks; interest ranging from 4.29% to 7.50%, due in monthly installments ranging from $256 to $13,489, including interest, with final payments due in January through December 2007.

        

        

        579,471

        

        

        982,376Installment notes payable to banks; interest ranging from 4.65% to 6.06%, due in monthly installments ranging from $162 to $7,289, including interest, with final payments due in January through September 2008.

        

        

        364,403

        

        

        409,688Installment note payable to bank; interest at 6.25%, due in monthly installments of $1,901, including interest, with final payment due in June 2009.

        

        

        57,500

        

        

        $

        1,007,046

        

        $

        1,653,066


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Payments
          on the above notes are due as follows:AmountThree
          months ended December 31, 2006
      
      $
      220,197Year
          ended December 31, 2007
      
      
      672,960Year
          ended December 31, 2008
      
      
      102,688Year
          ended December 31, 2009
      
      
      11,201$
      1,007,046




6.


      SupplementalCash FlowInformation


      Other noncash activities included in the determination of net loss are as follows:




Nine months Ended September 30,


      

        2006


      

        2005Lease income, net of interest expense on notes payable realized as a result of direct payment of principal by lessee to bank


      


      $


      869,485


      


      $


      1,012,403


No interest or principal on notes payable was paid by the Partnership because direct payment was made by the lessee to the bank in lieu of collection of lease income, payment of interest, and principal by the Partnership.

Noncash investing and financing activities include the following:



Nine months Ended September 30,


      

        2006


      

        2005Debt assumed in connection with purchase of computer equipment


      


      $


      223,464


      


      $


      811,022Equipment acquisition fees earned by General Partner upon purchase of equipment from prepaid acquisition fees

        

        $

        17,626

        

        $

        (1,818

        )


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Item 2:

        Managements Discussion and Analysis of Financial Condition and Results of Operations


CRITICAL ACCOUNTING POLICIES

The Partnerships discussion and analysis of its financial condition and results of operations are based upon its financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Partnership to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Partnership believes that its critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements.

FORWARD-LOOKING STATEMENTS

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking   statements  within  the  meaning  of  the  Private  Securities Litigation  Reform  Act of 1995  (PSLRA). These  statements  are  being  made pursuant to the PSLRA, with the intention of obtaining the benefits of the safe harbor  provisions of the PSLRA,  and, other than as required by law, we assume no  obligation  to  update  or  supplement  such   statements.  Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these   statements  by  the  use  of  words  such  as  may,  will,  could, anticipate, believe,
estimate, expects, intend, predict or project and variations of these words or comparable words or phrases of similar meaning. These  forward-looking  statements  reflect our current beliefs and expectations with respect to future  events and are based on  assumptions  and are subject to risks and  uncertainties  and other  factors  outside our control that may cause actual results to differ materially from those projected.

COMPUTER EQUIPMENT

Commonwealth Capital Corp, on behalf of the Partnership and other affiliated partnerships, acquires computer equipment subject to associated debt obligations and lease revenue and allocates a participation in the cost, debt and lease revenue to the various partnerships based on certain risk factors. The Partnership will acquire equipment with no associated debt obligations with the original contributions. The Partnership plans on acquiring equipment leases with associated debt obligations from the monthly rental payments associated with the equipment acquired with its original capital contributions. Depreciation on computer equipment for financial statement purposes is based on the straight-line method over estimated useful lives of four years.

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REVENUE RECOGNITION

Through September 30, 2006, the Partnership has only entered into operating leases. Lease revenue is recognized on a monthly basis in accordance with the terms of the operating lease agreements.

The Partnership reviews a customers credit history extending credit and establishes provisions for uncollectible accounts based upon the credit risk of specific customers, historical trends and other information.

LONG-LIVED ASSETS

The Partnership evaluates its long-lived assets when events or circumstances indicate that the value of the asset may not be recoverable. The Partnership determines whether an impairment exists by estimating the undiscounted cash flows to be generated by each asset. If the estimated undiscounted cash flows are less than the carrying value of the asset then an impairment exists. The amount of the impairment is determined based on the difference between the carrying value and the fair value. Fair value is determined based on estimated discounted cash flows to be generated by the asset.

Liquidity and Capital Resources

The Partnerships primary source of capital for the nine months ended September 30, 2006 and 2005 was from net proceeds received from sale of equipment of approximately $441,000 and $225,000, respectively. The primary uses of cash for the nine months ended September 30, 2006 and 2005 were for capital expenditures for new equipment of approximately $488,000 and $325,000, respectively, and the payment of preferred distributions to partners of approximately $1,123,000 and $1,124,000, respectively.

For the nine month period ended September 30, 2006, the Partnership generated cash flows from operating activities of approximately $779,000, which includes a net loss of approximately $1,061,000, a loss on sale of equipment of approximately $279,000, and depreciation and amortization expenses of approximately $2,512,000. Other non-cash activities included in the determination of net income include direct payments of lease income by lessees to banks of approximately $869,000.

For the nine month period ended September 30, 2005, the Partnership generated cash flows from operating activities of approximately $1,720,000, which includes net loss of approximately $3,000, payment of accounts payable, which was primarily for the purchase of equipment of approximately $16,000, a loss on sale of equipment of approximately $163,000, and depreciation and amortization expenses of approximately $2,916,000. Other non-cash activities included in the determination of net income include direct payments of lease income by lessees to banks of approximately $1,012,000.

The Partnerships investment strategy of acquiring computer equipment and generally leasing it under triple-net leases to operators who generally meet specified financial standards minimizes the Partnerships operating expenses. As of September 30, 2006, the Partnership had future minimum rentals on non-cancelable operating leases of $564,000 for the balance of the year ending December 31, 2006 and $1,464,000 thereafter. At September 30, 2006, the outstanding debt was $1,007,000, with interest rates ranging from 4.29% to 7.50%, and will be payable through June 2009.

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As of September 30, 2006, the Partnership has an unsecured, non-interest bearing receivable from CCC, a related party to the Partnership, in the amount of approximately $208,000, which primarilyoriginated in 2003. CCC, through its indirect subsidiaries, including the General Partner of the Partnership, earns fees based on revenues and new lease purchases from this fund. CCC intends to repay these receivables, through acquisition fees, debt placement fees and reimbursement of expenses, with a minimum amount of $12,500 per quarter, which commenced in the quarter ending March, 2004.

The Partnerships cash from operations is expected to continue to be adequate to cover all operating expenses, liabilities, and preferred distributions to Partners during the next 12-month period. If available Cash Flow or Net Disposition Proceeds are insufficient to cover the Partnership expenses and liabilities on a short and long term basis, the Partnership will attempt to obtain additional funds by disposing of or refinancing Equipment, or by borrowing within its permissible limits. The Partnership may, from time to time, reduce the distributions to its Partners if it deems necessary. Since the Partnerships leases are on a triple-net basis, no reserve for maintenance and repairs are deemed necessary.

The Partnership intends to invest $200,000 in additional equipment for the remainder of 2006. The acquisition of this equipment will be funded by debt financing, and the debt service will be funded from cash flows from lease rental payments.

The Partnerships share of the computer equipment in which they participate at September 30, 2006 and December 31, 2005 was approximately $1,380,000 and $1,188,000 respectively, and is included in the Partnerships fixed assets on their balance sheet. The total cost of the equipment shared by the Partnership with other partnerships at September 30, 2006 and December 31, 2005 was approximately $3,993,000 and $2,667,000 respectively.

Results of Operations

Three Months Ended September 30, 2006 compared to Three Months September 30, 2005

For the three-months ended September 30, 2006, the Partnership recognized income of approximately $713,000, and expenses of approximately $1,000,000 resulting in net loss of approximately $287,000.  For the three months ended September 30, 2005, the Partnership recognized income of approximately $1,250,000, and expenses of approximately $1,235,000, resulting in net income of approximately $15,000.

Lease income decreased by 44% to $700,000 for the quarter ended September 30, 2006, from $1,247,000 for the quarter ended September 30, 2005, primarily due to fewer lease agreements being entered into since the quarter ended September 30, 2005.

Operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. The expenses increased 50% to approximately $148,000 for the quarter ended September 30, 2006, from $99,000 for the quarter ended September 30, 2005.

The equipment management fee is approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee decreased 42% to approximately $36,000 for the quarter ended September 30, 2006, from $62,000 for the quarter ended September 30, 2005, and is consistent with the decrease in lease income.

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Depreciation and amortization expenses consist of depreciation on computer equipment and amortization of equipment acquisition fees. The expenses decreased 15% to approximately $820,000 for the quarter ended September 30, 2006, from $960,000 for the quarter ended September 30, 2005 due to equipment and acquisition fees being fully depreciated/amortized. The Partnership identified specific computer equipment and associated equipment acquisition costs, which were reevaluated due to technological changes.

The Partnership sold computer equipment with a net book value of approximately $232,000 for the quarter ended September 30, 2006 for a net loss of approximately $21,000. The Partnership sold computer equipment with a net book value of approximately $269,000 for the quarter ended September 30, 2005, for a net loss of approximately $88,000.

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30, 2005

For the nine months ended September 30, 2006, the Partnership recognized income of approximately $2,525,000 and expenses of approximately $3,586,000, resulting in a net loss of approximately $1,061,000.  For the nine months ended September 30, 2005, the Partnership recognized income of approximately $3,770,000, and expenses of approximately $3,773,000, resulting in a net loss of approximately $3,000.

Lease income decreased by 34% to $2,501,000 for the nine months ended September 30, 2006, from $3,767,000 for the nine months ended September 30, 2005, primarily due to fewer lease agreements being entered into since the nine months ended September 30, 2006.

Operating expenses, excluding depreciation, primarily consist of accounting, legal, outside service fees and reimbursement of expenses to CCC, a related party, for administration and operation of the Partnership. The expenses increased 29% to approximately $544,000 for the nine months ended September 30, 2006, from $421,000 for the nine months ended September 30, 2005, primarily due to an increase in the amount charged by CCC, a related party, to the Partnership for its legal fees.

The equipment management fee is approximately 5% of the gross lease revenue attributable to equipment that is subject to operating leases. The equipment management fee decreased 33% to approximately $126,000 for the nine months ended September 30, 2006, from $188,000 for the nine months ended September 30, 2005, and is consistent with the decrease in lease income.

Depreciation and amortization expenses consist of depreciation on computer equipment and amortization of equipment acquisition fees. The expenses decreased 12% to approximately $2,580,000 for the nine months ended September 30, 2006, from $2,916,000 for the nine months ended September 30, 2005 due to equipment and acquisition fees being fully depreciated/amortized.

The
    Partnership sold computer equipment with a net book value of approximately
    $720,000 for the nine months ended September 30, 2006, for a net loss of
    approximately $279,000. The Partnership sold computer equipment with a net
    book value of approximately $389,000 for the nine months ended September
    30, 2005, for a net loss of approximately $163,000.

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Item 3.

        Quantitative and Qualitative Disclosures About Market Risk


The Partnership believes its exposure to market risk is not material due to the fixed interest rate of its long-term debt. There are no material changes to this disclosure related to these items since the filing of our Annul Report on Form 10-K for the year ended December 31, 2005.

Item 4.

        Controls and Procedures


The Chief Executive Officer and Financial Officer of the General Partner has conducted a review of the Partnerships disclosure controls and procedures as of September 30, 2006.

The Partnerships disclosure controls and procedures include the Partnerships controls and other procedures designed to ensure that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the  Exchange Act) is accumulated and communicated to the General Partners management, including its Chief Executive Officer and Financial Officer, to allow timely decisions regarding required disclosure and to ensure that such information is recorded, processed, summarized and reported with the required time period.

Based upon this review, the General Partners Chief Executive Officer and Financial Officer has concluded that the Partnerships disclosure controls (as defined pursuant to Rule 13a-14 c promulgated under the Exchange Act) are sufficiently effective to ensure that the information required to be disclosed by the Partnership in the reports it files under the Exchange Act is recorded, processed, summarized and reported with adequate timeliness.

There have been no changes in the General Partners internal controls or in other factors that could materially affect our disclosure controls and procedures in the quarter ended September 30, 2006, that have materially affected or are reasonably likely to materially affect the General Partners internal controls over financial reporting.

Part II: OTHER INFORMATION

Commonwealth Income & Growth Fund IV

Item 1.

        Legal Proceedings.


In the 4th quarter of 2005, CCC identified payment problems with Allserve Systems Corp. (Allserve), one of the Partnerships lessees. The bank had returned a number of Allserves checks issued in October 2005. The Partnership immediately began communication with the lessee, only to ultimately find that they filed for protection under Chapter 11 of the United States Bankruptcy Code on November 18, 2005. The General Partner responded to the Bankruptcy petition promptly and assertively. Counsel was retained for the Partnership. All litigation meetings and equipment inspections were attended by the General Partner, for purpose of identifying and tagging all assets belonging to the Partnership. The Partnership owns either all or portions of 5 equipment leaseswith
Allserve, with original purchase prices of approximately $2,789,000.

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On January 12, 2006, the trustee filed a petition before the court asking for the bankruptcy petition to be changed to a Chapter 7 Liquidation, due to Allerves inability to pay its ongoing bills and the trustees belief that Allserve was not being honest in its dealings with the Trustee. The Judge granted this request.

An official creditors committee (Creditors Committee) was organized by the Trustee in February 2006. An officer of CCC is a member of the Creditors Committee. Other creditors affected and represented on the creditors committee include IBM Credit LLC, DB Zwirn and Universal Equipment Leasing. A forensic accounting firm is being retained by the Creditors Committee to investigate transfers of significant quantities of cash from Allserve accounts, prior to its Bankruptcy petition. On March 16, 2006, the Trustee granted stay relief to allow the Partnership and other creditors to take possession of their assets. As of March 23, 2006, the Partnership had recovered all of its equipment which was subject to leases with Allserve.

Commonwealth Capital Corp. has retained Beach Financial Corporation (Beach), of Safety Harbor, Florida, to help place the AllServe equipment currently in storage onto new leases. Beach Financial was founded in 1978, and specializes in the sale and re-lease of numerous types of equipment, including the manufacturers of the equipment on the AllServe Schedules, Motorola and Nortel. Commonwealth has had five meetings with Beach Financial to strategize how to redeploy this equipment. In a conference call on Tuesday August 1, 2006, Beach informed Commonwealth that there are currently three companies that are interested in leasing this equipment. As of November 2006 there have been no updates regarding this AllServe matter.

Item 1A.

        Risk Factors


Other than with respect to the risk factor below, there have been no material changes from the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2005. The risk factor presented below should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K.

THERE IS NO PUBLIC MARKET FOR THE UNITS, AND YOU MAY BE UNABLE TO SELL OR TRANSFER YOUR UNITS AT A TIME AND PRICE OF YOUR CHOOSING

There exists no public market for the units, and the general partner does not expect a public market for units to develop. The units cannot be pledged or transferred without the consent of the general partner. The units should be purchased as a long-term investment only. The general partner intends to limit the number of transfers to no more than that number permitted by one of the safe harbors available under the tax laws and regulations to prevent CIGF4 from being taxed as a corporation. Generally, these safe harbors require that all nonexempt transfers and redemptions of units in any calendar year not exceed two percent of the outstanding interests in the capital or profits of CIGF4.

The general partner has sole discretion in deciding whether we will redeem units in the future. Consequently, you may not be able to liquidate your investment in the event of an emergency. You must be prepared to hold your units for the life of CIGF4. CIGF4s life cycle will last approximately 10 to 12 years, and any extension of this period will require an amendment to the partnership agreement, which must be approved by a majority of the limited partners. You may be able to resell your units, if at all, only at a discount to the offering price, which may be significant, and the redemption or sale price may be less than the price you originally paid for your units.

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INFORMATION TECHNOLOGY EQUIPMENT WE PURCHASE WILL DEPRECIATE IN VALUE AND/OR BECOME OBSOLETE OR LOSE VALUE AS NEW TECHNOLOGY IS DEVELOPED, WHICH CAN REDUCE THE VALUE OF YOUR UNITS AND YOUR ULTIMATE CASH RETURN.

Residual value is the amount realized upon the sale or release of equipment when the original lease has expired. The residual value of our equipment may decline if technological advancements make it obsolete or change market preferences. The residual value depends on, among other factors, the condition of the equipment, the cost of comparable new equipment, the technological obsolescence of the equipment and supply and demand for the equipment.

In either of these events, the equipment we purchased may have little or no residual value. This will result in insufficient assets for us to distribute cash in a total amount equal to the invested capital of the limited partners over the term of our existence. Also, such an occurrence may reduce the value of the units. Although currently we expect CIGF4 to acquire predominantly new equipment, CIGF4 may purchase used equipment. There is no limitation on the amount of used equipment which CIGF4 may acquire. The acquisitions of used equipment may increase the risk that such equipment will become obsolete so that it will have little or no residual value.

WE PAY SIGNIFICANT FEES TO THE GENERAL PARTNER AND AFFILIATES, WHICH REDUCE CASH AVAILABLE FOR DISTRIBUTIONS.

The general partner and its affiliates, including Commonwealth Capital Securities Corp., will receive substantial fees. Some fees will be paid without regard to the amount of distributions paid or the success or profitability of CIGF4s operations and investments. For example, an increase in portfolio turnover or the amount of leverage used to purchase equipment may increase the fees we pay to the general partner. Such compensation and fees were established by the general partner and are not based on arms-length negotiations. Our operations may not ultimately be successful and we may be unable to meet our stated investment objectives. Specifically, sufficient cash may ultimately not be available for distribution to investors.  Our general partner sponsors four other public equipment leasing programs with investment objectives similar to CIGF4. The general partner has also sponsored
several privately held equipment leasing programs. Results for these prior public and private programs have in some cases been lower than originally anticipated.

ANY DELAY IN ACQUIRING EQUIPMENT WILL DIMINISH OUR RETURNS.

Due to competition with other lessors, we may experience difficulty in obtaining and leasing appropriate equipment. Our ability to acquire and lease equipment may also be adversely affected by interest rates, the availability of capital or increases in corporate liquidity, since prospective lessees may prefer to raise capital, incur debt or use internally-generated cash to purchase equipment rather than enter the leasing market.

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Item
          2.
      Unregistered
          Sales of Equity Securities and Use of Proceeds.


N/A

Item
          3.
      Defaults
          Upon Senior Securities.


N/A

Item
          4.
      Submission
          of Matters to a Vote of Securities Holders.


N/A

Item
          5.
      Other
          Information.


N/A

Item
          6.
      Exhibits
          and Reports on Form 8-K


a)

        Exhibits:


31.1 THE RULE 15d-14(a)

31.2  THE RULE 15d-14(a)

32.1 SECTION 1350 CERTIFICATION OF CEO

32.2 SECTION 1350 CERTIFICATION OF CFO

b)

        N/A


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



COMMONWEALTH INCOME & GROWTH FUND IVBY: COMMONWEALTH INCOME & GROWTH FUND, INC. General PartnerDate November 14, 2006


      


      


      By:


      /s/ Kimberly A. SpringsteenKimberly A. SpringsteenChief Executive Officer


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