What is IRS FORM 4506-T?
IRS Form 4506-T is a request from the tax payer to the IRS to issue transcripts of their tax returns or other information for specified financial years or periods. IRS issues the transcripts or information to the tax payer or a third party authorized by the tax payer. Form 4506-T is also known as Request for Transcript of Tax Return Form. A mortgage lender may ask the borrower to submit a completed Form IRS 4506-T as time of submitting application, at the time of closing, or both.
Through the use of Form 4506-T, the IRS provides the following documents:
- Transcripts for Form 1040 series: U.S. Individual Income Tax Return. Records are available for up to 4 years.
- Transcripts for Form 1065: U.S. Return of Partnership Income. Records are available for up to 4 years.
- Transcripts for Form 1120, 1120A, 1120H, 1120L, 1120S: U.S. Corporation Income Tax Return. Records are available for up to 4 years.
- Account Transcript: Provides current status of the tax payer including payments, penalty assessments, and adjustments.
- Record of Account: Provides combination of line item information and later adjustments to the account. Records are available for up to 4 years.
- Verification of Non filing of Tax Returns: Available for any year.
- Transcripts for Form W-2: Wage & Tax Statement. State or local information is not included with the Form W-2 information. Records are available for up to 10 years.
- Transcripts for Form 1099 Series: Dividends, Interest, Miscellaneous Income, Government Payments, Cancellation of Debt, etc. Records are available for up to 10 years.
- Transcripts for Form 1098 Series: Mortgage Interest, Student Loan Interest, Tuition Statements. Records are available for up to 10 years.
- Transcripts for Form 5498 Series: IRA Contribution Information. Records are available for up to 10 years.
Depending upon the requested information, IRS estimates the processing time between 10 to 45 days for the information to be made available.
Validity of IRS Form 4506-T
The IRS Form 4506-T is valid only for 60 days from the date the borrower executes (signs) it. Given the short validity period, some may require a completed 4056-T at both application and loan closing. This will give the lender the ability to perform the review of tax returns at underwriting or pre-funding stage and at post closing stage.
The form is completed and issued by the borrower who is the tax payer. In case of joint returns, either spouse may sign. In case of corporations, an authorized officer on behalf of the company may sign.
Use of 4506-T in Mortgages
A borrower provides copies of W2’s, Tax Returns, pay checks, income statement, or other documentation to support the income claimed on the loan application. However, the lender needs to form a reasonable basis to ensure that it can rely on the information provided by the borrower. IRS Form 4506-T allows the lender to obtain a transcript of tax return and other information which can be used to independently verify the income of the borrower and to determine if the documentation provided by the borrower is consistent with the tax returns. In fact, if the income documentation provided by the borrower is used for preparing the tax return then the information in such documentation must match exactly with the information provided by IRS. This review will uncover any misrepresentation on the loan application or supporting documentation. Therefore, the tax information obtained from the use of Form IRS 4506-T can serve the following purposes:
- Fraud Prevention: The transcripts of the tax returns can be used to proactively detect and prevent any fraud on the mortgage applications. Some of the high risk areas where use of 4506-T is targeted are:
- Self Employed Borrower: Self-employed borrowers may not be able to provide standard income documentation. In this case, obtaining tax returns through IRS is an efficient method to judge the income of the borrower.
- Difference between Tax Returns and Financial Statements: The tax income can be different on the tax return than the income reported on financial statements. This difference is generally due to differences between tax laws and accounting practices (GAAP). However, the difference may reveal that the financial statements submitted by the borrower are misleading. A person is more likely to misrepresent facts on a financial statement than on a tax return.
- Stated Income Loans: These loans allow a borrower to state income on the application without providing any documentation to support the claim of income. It was designed for borrowers that are unable to document their income or want a quicker loan. However, stated income loans have been used for fraudulent purposes by borrowers. A lender may want to use the 4506-T to obtain tax return to verify the income. Ironically, verifying income in this manner may cease the loan to be a Stated Income loan.
- Quality Control and Compliance with Investor Guidelines: The tax returns can be used as part of quality control at the time application or after the loan has closed. This step may be incorporated as part of Fraud Prevention policy or due to the requirement of the investor.
- Filing Status: The tax returns can be reviewed to ensure the borrower has filed the tax returns on time.
- Employment Status: The employment status, such as self-employed or W2 employee, can be confirmed.
- Income Documentation: As part of underwriting process, a lender may use the IRS Form 4506-T to obtain tax returns and use those in lieu of copy of tax returns provided by the borrower. However, this is not a recommended.
Provide Completed Forms
You must ensure the form is completed before signing and submitting the form:
- Complete Form: The form should be fully completed. To prevent fraud or abuse, never provide a blank signed form to the lender. Blank signed forms can be used by a person to fill in their name as a recipient and request your personal tax information from the IRS. At a minimum ensure the following information is filled in before signing:
- Line 5: Name of the third party or lender that you are authorizing to receive your tax information.
- Line 6: The tax information that the lender is authorized to receive.
- Line 9: Time period for the tax information that the lender is authorized to obtain.
- Date: The form must be dated. Un-dated forms will allow the lender to obtain tax information at any time in the future. Remember, IRS Form 4506-T is valid only for 60 days from the date you sign it.
Review Form Before Submitting to IRS
The loan processor or underwriter should review the completeness of the form.
- Complete Form: All the required fields have been completed.
- SSN and Address Comparison: SSN and address on Form IRS 4506-T must match the SSN and address on the loan application.
- Correct Years: The years for which tax information is requested is correct. This would be important in the first few months in a year when the information with IRS has not yet been updated. Also, the product guidelines or Seller’s Guide may mandate the number of years for which the transcripts need to be obtained.
IRS Form 4506-T is used to make a request from the tax payer to the IRS to issue transcripts of their tax returns for specified periods.
Use in Mortgages
By executing 4506-T, the lender receives the transcripts of tax returns which are used for independent verification of income and employment status.
Request for Transcript of Tax Return
Life Cycle Stage
The form must be maintained in the loan file while the loan is outstanding.
IRS Form 4506-T
Internal Revenue Code
Future Updates by IRS
IRS Form 4506-T webpage provides filing instructions, recent developments, and information about any future updates or developments affecting the form.