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#991551 - 07/10/08 12:16 AM Verifying the validity of a tax return
EmilyAnn Offline
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Joined: Jul 2007
Posts: 273
Our bank, like many banks, relies heavily on tax returns to validate a borrower's income and financial condition. This is particularly true with commercial loans. We also use tax returns as a non-documentary identity verification source(in conjunction, or course, with other documentary and non-documentary sources).

Of course, it would be fairly easy for someone to create bogus tax returns when they apply for a loan. These could easily be created in Turbotax or another software program. We require that tax returns be signed - but of course, anyone could simply sign the bogus document that shows an inflated income. And someone could easily create a bogus tax return as part of an identity theft scheme. We have other identity verification methods to help catch those identity theft attempts, but it still seems like more could be done.

That said, here is my question - what is the best way to verify the validity of a tax return? We'd want to verify that the return is valid and was filed with the IRS, and if possible, that the income listed in the return matches what the IRS received.

Thank you in advance for your input!

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#991568 - 07/10/08 12:42 AM Re: Verifying the validity of a tax return EmilyAnn
Ray_ Offline
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Dallas, TX
You can use Form 4506-T to request a transcript of a filed tax return free of charge. It's always done on SBA loans. The only drawback is waiting for it to come back.

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#991738 - 07/10/08 12:17 PM Re: Verifying the validity of a tax return Ray_
Rocky P Online
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If it is a tax return prepared by a CPA, you could also include a copy of the 1040 - (both sides) confirm with the CPA that they prepared and signed the return. It's not as exact as the 4506-T, but the CPA's license is on the line, and it's a lot quicker.
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#991994 - 07/10/08 02:31 PM Re: Verifying the validity of a tax return Rocky P
Elwood P. Dowd Offline
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There's an incremental difference in the credibility of the two examples. A CPA can say she prepared it and signed it, but unless she filed the tax return electronically or mailed it for the customer, she cannot say for certain that the return was actually filed or whether it satisfied the taxpayer's liability.

On reflection, I went and looked at the 4506T Form...it's not just a request for a copy of an income tax return. It contains more of the information the original poster is looking for.
Last edited by Ken_Pegasus; 07/10/08 02:42 PM.
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#992225 - 07/10/08 04:22 PM Re: Verifying the validity of a tax return Elwood P. Dowd
EmilyAnn Offline
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Great information! Thank you to everyone who replied.

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#992237 - 07/10/08 04:27 PM Re: Verifying the validity of a tax return Elwood P. Dowd
Ray_ Offline
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Requesting the Transcript of what was filed is free (4506T). Requesting a copy of a filed tax return has a fee associated with it (4506).

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#992440 - 07/10/08 05:39 PM Re: Verifying the validity of a tax return Ray_
Rocky P Online
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EmilyAnn, it was mentioned that the 4506T was free, but that it took a long tome to get.

From a few years ago, I remember that there are several companies that are somehow licensed with the IRS and (for a fee) you can fax the 4506T form to them and they will get you a reply within 2 days.
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#992630 - 07/10/08 07:42 PM Re: Verifying the validity of a tax return Rocky P
Elwood P. Dowd Offline
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Don't know about you folks, but I'm learning a lot. Sample vendor This is not an endorsement; I don't know anything about these folks. They were just the first ones to turn up on the Google search.
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#992636 - 07/10/08 07:44 PM Re: Verifying the validity of a tax return Elwood P. Dowd
Ray_ Offline
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Dallas, TX
That's pretty cool. Didn't know that was even an option.

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#992648 - 07/10/08 07:51 PM Re: Verifying the validity of a tax return Elwood P. Dowd
Reads Regs Offline
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The IRS also has the Income Verification Express Service.

http://www.irs.gov/individuals/article/0,,id=161649,00.html

My bank hasn't signed up for it. I passed the information on to management. We currently fax the 4506-T to the IRS and wait for the reply in the mail.

When we have an urgent request, we pay a vendor a fee for the two day turn around mentioned in one of the prior posts. We have used a company called NCS. http://www.ncstrv.com/
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#992786 - 07/10/08 09:33 PM Re: Verifying the validity of a tax return Reads Regs
EmilyAnn Offline
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Is anyone requiring verification of the tax return prior to loan closing for fraud detection/prevention purposes (including possible compliance with the red flags rules)?

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#993385 - 07/11/08 02:58 PM Re: Verifying the validity of a tax return EmilyAnn
GiftOfLife Offline
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Kansas City
I previously worked at a bank that had the local IRS office in our Bank complex. Whenever I needed a tax return transcript, I would fax or hand-deliver it to the IRS office and either receive it while I was in the office or within an hour or so by fax. I know this is the exception to the rule, but it's an option for you if you have an IRS office nearby. The quick transcript turnaround certainly shortened the SBA loan process, making for happier customers.

With all the issues today of financial/mortgage fraud, I think it would be a wise practice to invoke this service whenever you had reason to questions tax return numbers.
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