Thunder, welcome to BOL, and the only question that is stupid is the one that is not asked.
Your loan policy should define what you gross up and how. For Fair Lending, the applicant with non-taxable income has a greater buying power than those solely with taxable income. Many banks gross-up non-taxable income to it's taxable equivalent to be able to analyze both applications the same way (buying power). Someone with $26,000 tax free income has a greater buying power than someone who has to pay taxes on their $26,000.
Not doing it could potentially have Disparate Impact because although your loan policy is the same for all applicants, it has the potential of negatively affecting or discriminating against a protected class (elderly) which is defined as age 62 and greater.
I survived an OCC Fair Lending/Comparative File Review of 1,756 loans with no findings that stuck!
CRCM, CIA, CRP, CBA