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#2226673 - 12/04/19 02:37 PM Tax Payer Consent Question
Luv2run Offline
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Posts: 479
I am having trouble understanding this and would love some help. Do we only need to obtain the consent when we are obtaining a transcript from the IRS for underwriting? Or should we have it anytime we are going to have tax returns in the loan file, even if they were provided by the borrowers themselves.

Thanks for any input!
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Lending Compliance
#2226690 - 12/04/19 03:26 PM Re: Tax Payer Consent Question Luv2run
Truffle Royale Offline

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The undersigned further provides all Loan participants including, but not limited to actual and/or potential owners of my Loan, any party with a beneficial interest in my Loan, insurers, guarantors, servicers or service providers and their affiliates, agents, successors and/or assigns of all such parties with the authority to obtain, use and share my tax return information for any and all purposes necessary to effectuate the origination, closing, maintaining, servicing, marketing, monitoring, preparing for sale, selling, insuring or securitizing of my Loan and for any other purposes relating to the loan to the extent permitted by law.


This is the language on the consent form. I think it's clear that if any time there's tax info, you need the borrower's consent. fwiw, we're doing it on all files.

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#2226718 - 12/04/19 05:26 PM Re: Tax Payer Consent Question Luv2run
Luv2run Offline
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Posts: 479
I took it that way as well, however, the MISMO sight shows background information that links it to the 4506-T request. The following is form the MISMO website:

For many years the lending industry has used a specific provision in the IRS code to order transcripts. Having borrowers sign form 4506-T has always sufficed to indicate tax payer consent. Section 2202 modifies the tax code and now necessitates that organizations inform the taxpayer of the "express purpose" for which tax return information will be used. Further, this section now necessitates that borrower provide "express permission" to allow sharing of return information with other lending stakeholders. Just having form 4506-T signed will no longer suffice to meet these new consent requirements.

I took this to mean this is a requirement tied to the use of the 4506-T
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#2226723 - 12/04/19 05:57 PM Re: Tax Payer Consent Question Luv2run
rlcarey Online
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rlcarey
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Galveston, TX
The law reads:

``Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.''.

While the first part of the law appears to reference information obtained from the IRS - although a T-4506 can no longer be used to obtain the information - the second part of the law is separated by an "and".

"shall not disclose return information to any other person without the express permission of, or request by, the taxpayer."

You are passing on tax information to a third party, I think you want a consent signed.
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#2226811 - 12/05/19 03:45 PM Re: Tax Payer Consent Question Luv2run
Luv2run Offline
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Joined: Jan 2015
Posts: 479
Thank you both for your help! One little word can make such a big difference!
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#2226822 - 12/05/19 04:35 PM Re: Tax Payer Consent Question Luv2run
Tarhe Offline
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California
"You are passing on tax information to a third party, I think you want a consent signed."

If we obtain tax returns for in-house use only (submitted by the borrowers themselves and not to be shared with third parties), the consent form will not be needed at all, is that correct? (Sounds like some banks are getting them for every loan, regardless - is that necessary?)

If we obtain tax transcripts, would we need the consent (even if we never share the tax returns with a third party?)

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#2226842 - 12/05/19 06:13 PM Re: Tax Payer Consent Question Luv2run
Learned Hand Offline
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Joined: Feb 2019
Posts: 36
Two things:

1. I agree with Randy that the safest thing to do is get the consent, but I disagree with his interpretation of the statutory change.

The "and" does not completely separate the first part of the sentence from the second, because there is no subject in the second part of the sentence. Adding the subject to the second part, it reads: "Persons designated by the taxpayer under this subsection to receive return information...shall not disclose return information to any other person without the express permission of, or request by, the taxpayer." The subsection is 26 USC sec. 6103(c), which authorizes the IRS to provide a taxpayer's returns/return information to a designated party. So, if a borrower has never given consent for your bank to receive return information directly from the IRS, then the consent for disclosure requirement does not apply. If the borrower has given that consent, then the requirement applies to all tax return information you have for that borrower, whether provided by the IRS or not. (The use limitation only applies to information received directly from the IRS, but the disclosure limitation applies to all return information without qualification.)

2. I think that if you are subject to the consent for disclosure requirement, then that requirement applies regardless of whether the loan stays in-house or not. In this context, I believe that your bank would be considered to be one person, and a vendor of yours would be considered to be a separate person. Once you put tax return information on any computer system, it is theoretically accessible by your IT vendor/mortgage software vendor/etc. Therefore, unless you receive a tax return and just put it in a drawer, you'll need the consent for disclosure.

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