best practices for completing irs form 4506t... · form 4506-t is an internal revenue service (irs)...

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Best Practices for Completing IRS

Form 4506TTax Transcripts

February 2017

24506 Transcript Review

Form 4506-TForm 4506-T is an Internal Revenue Service (IRS) document that is used to

retrieve past Federal tax returns, W-2, and 1099 transcripts that are on file with the

IRS. The document gives permission for a third party to retrieve the tax payer’s

data.

The tax payer must sign and date the 4506-T. The form is good for 120 days.

With the IRS 4506-T you can order 1040, 1120, 1065, W-2 and 1099 transcripts

If you are requesting the transcripts & have received the borrower’s tax returns

please verify for any discrepancies!


Form 4506-T

www.irs.gov

http://www.irs.gov/

Form 4506-T

4

The most common reason why the

IRS will not process an order is that the

address does not match the tax year

that is requested on the form.

– List previous addresses for the applicant

on Line #4 of the 4506-T.

Another reason for not processing an

order is that the signature is “illegible”

– Make sure all information is large and

readable

– See additional tips in our reference

section


4506-T Options

5

Line 6 Transcript Requested

– Enter the tax form number here (1040, 1065, 1120,

– etc.)

– You must check an option by making the box

– Let’s review the options…


4506-T Options

6

Options- 6 A

– This option will not alert you to any

updates/amendments the tax payer

has filed.


4506-T Options

7

Options- 6 B

– This option details payments made,

penalties accessed, and adjustments

made after the filing


4506-T Options

8

Options- 6 C

– This option contains the most detail. It is

a combination of options A & B.

– This is how an amended return would be

detected

– Follow your Company policy on which

option to choose


Did they file a Tax Return?


Did they file a Tax Return?


http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1

http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1

4506-T Options

11

Option- 7

– This option verifies that there was no tax

returned filed.


4506-T Options

12

Option- 8

– This option provides detailed data

contained on a tax payer’s W-2.


Example


ExampleReview ALL W-2’s reported

Review history of Interest Income & Dividends to determine if they

are suitable to use as Qualifying Income


ExampleIf using Alimony as Qualifying Income-verify it has been

paid as agreed

Has a Schedule C been filed?


Schedule C•Do you have to check the

an AUS?

•Did you complete a Cash

Flow Worksheet?

•Is there a cash flow loss?

•Is the Income stable & usable

as qualifying income?

•Is it the same business

activity?


ExampleIf using IRA distributions, Pensions or Annuities as Qualifying Income

verify past history of receipt and probable continuance.

Has a Schedule E been filed? Check for-

– Rental Properties

– K1’s from trusts, partnerships, LLC’s & S Corps

– CMO’s (collateral mortgage obligation)


Example- Schedule EHow many properties are owned

& financed?

What is the Net Cash Flow?

Did you Verify current property

related expenses?

Did you verify current actual

expenses vs. previous itemized

allowable expenses?

Current taxes

Current Insurances (*Flood)

HOA…


Example- Schedule EIs there business activity listed?

Do they have ownership in a

Partnership, S Corp, Trust?

Do you have the corresponding

K-1?


Example- K-1What is the % of Ownership?

Does the K-1 indicate a cash

distribution has been made to the

tax payer?

Do you need to review the issuing

Business Entities Return?


Example- Business ReturnDoes the Business have positive

sales & earnings trends?

Is the Business liquid/solvent?

Did you complete a Cash Flow

Analysis and Trend Analysis?


Example

Is there a Schedule F filed?

– Profit or Loss

– Is it on the Subject Property?

Did the tax payer declare Unemployment Compensation?

– Were they unemployed seasonally?

– Does the 1003 indicate a gap in employment?

Has SS been received?

– Temporary or permanent?

– Is the benefit taxed?


Review Adjustments to Income


•Expenses

•Self Employment Indicator

Example


Unreimbursed Employee Expense

– Do they have to be used to reduce the Borrower’s Qualifying Income?

– Review 2106 Form to Calculate Total Expenses

Fannie Mae Guidelines 4506-T Form must be signed only once during the application process

– The timing is at the lender’s discretion but it must be signed on or before the closing of

the mortgage loan

– The Lender must document the requirement to obtain an executed IRS Form 4506-T with

the IRS in their written quality control (QC) plan

– The borrower may need to complete multiple forms for different types of returns

– If the form is executed prior to closing it must be used to validate the income

documentation provided by the borrower and used in the underwriting process.

When completing lenders must

– Fill in as the recipient of the tax documents — either its name or the name of the servicer,

if servicing will be transferred within 120 days of the taxpayer signing the form;

– Indicate that the request is for documentation concerning the year or years for which the

borrower’s income was or will be used in underwriting the loan; and

– Date the form with the date on which the borrower signs the form (or ascertain that the

borrower dates the form when he or she signs it)

• Note: The borrower should not be required to sign an IRS authorization form before all items on the

form, including the transcript being requested, the years/tax periods, and the date, have been

completed.


B3-3.1-06: Requirements and Uses of IRS Form 4506-T (10/24/2016)

Freddie Mac’s Guideline


Page five of matrix

February 2017 Documentation Matrix

Freddie Mac’s Guideline- 4506TREVISION NUMBER: 07062017

DATE: 07/06/2017

REVISION REMARKS: THIS CONTENT WILL BECOME EFFECTIVE ON 07/06/2017.

5302.5: IRS Form 4506-T requirements for all income and asset qualification

sources (Future effective date 07/06/17)

All Borrowers, whose income is used to qualify, must sign Internal Revenue

Service (IRS) Form 4506-T (or an alternate form acceptable to the IRS that

authorizes the release of comparable tax information) on the application date and

again on the Note Date, except that if the Form 4506-T obtained on the application

date is submitted to the IRS and tax transcripts are received back from the IRS,

Seller is not required to obtain an additional Borrower signed Form 4506-T.

If submitting the Form 4506-T to the IRS, the Seller must ensure that the IRS

receives the form prior to the form's expiration date. The Seller must retain the tax

documentation received back from the IRS in the Mortgage file.

28Fannie Mae’s DU Refi Plus

Your form may be rejected IF:

The form or an item on the form (e.g. name, TIN, address, etc.) is illegible.

The form is altered - there is evidence that an entry was changed with white out, lined through, or

written-over, or if there is any indication of cutting and pasting. Clarifying an illegible entry is not

considered an altered entry. However, adding additional information, such as tax periods, (some entries

typed, some handwritten) is considered altered.

Line 1a - No name is listed.

Line 1b - The first Social Security Number on tax return or Employer Identification Number is missing

or, is less than nine digits.

Line 5 – Any part of the Delegate’s name, address, Secure Mail Box Number, and fax number (10 digits)

is missing or incomplete.

Line 6 –More than one tax form number (1040, 1065, 1120, etc) is listed or if no tax form is listed for

business requests.

Line 6a/b/c –One of these boxes is not checked or if multiple boxes are checked, and a determination

cannot be made of which single product is requested.

Line 8 - The box is not checked and there is no indication of what type of document is being

requested.

Line 9 –No Year or Tax Period is listed.

• -Signature of the taxpayer or an authorized person does not match the taxpayer name on Line 1a,

2a or 3 or if one or more signatures is missing - Except when a power of attorney is attached.

- Date is not within 120 calendar days of the IRS Received Date or is not dated at all.

- Address provided does not match the address shown on the last tax return filed.

294506 Transcrit Review

4506-T Additional Tips*Use a fresh form for each consumer. Do not use copies, or forms that have been faxed multiple times.

Using the form from within the credit file ( which has information filled out already) would be the best

choice.

* Ensure the 4506-T is a full size, clean and straight scan with no print lines, light spots, or blurring.

*Use a standard font to fill out forms (Arial, Courier, Times Roman). With a standard font, it is easier for us

to make an edit without the appearance of being altered. This includes orders rejected for address where

we make corrections.

** Line 5 needs either needs to be completely blank, or must contain the vendor’s info

** Do not list multiple products on Line 6. If you will be ordering both 1040 and W-2's it would be best to

leave that line blank.

** Do not check multiple boxes on Lines 6-8. If you will be ordering multiple products (1040 and W-2), it is

best to leave the boxes blank. If you do check a box, keep the check mark inside the box.

** On Line 9, list all 4 years- 2013, 2014, 2015 and 2016. Adding a hand-written year to years that are

typed will cause rejection. We will circle the years needed. Please leave the circling to us- if you circle, it

will be



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