How Does A 4506-T Form Request Work?
The 4506-T Form is a document that the Internal Revenue Service, or IRS, requires for the retrieval of past W-2 forms, tax returns and 1099 transcripts. The form gives permission to a third party to gain access to a taxpayer’s past data. When a company needs this information, the taxpayer must fill out, sign and date the 4506-T Form.
Why is the 4506-T Form Used?
If a company is lending money, then it will generally use the 4506-T Form as a quality control measure. The document gives the company a way to verify the income of someone who is applying for a loan. It also acts as a fraud detection tool. The form allows lenders to stop the mortgage process or cancel the loan if it has already gone through the company’s basic approval process. If the lender detects fraud, the company can request its money back. Fraud situations involving mortgage loans can also result in legal action against the borrower.
Form Processing Details
For speed and convenience, many mortgage lenders hire a transcript company to process their 4506-T Forms. The first step is to upload the transcript to the processing company. Once the company has the document in its system, an expert will assess the information to ensure accuracy and compliance. The company will also make sure that the taxpayer filled out the form correctly. Upon internal approval, the processing company will forward the document to the IRS. If there is a problem with the form, the company will send the form back to the lender for adjustments.
After the IRS receives the 4506-T Form, the government agency will review it to determine an approval or a rejection. This process typically takes one to two business days when a lender hires a processing company. Some form requests are even completed during the same business day in which they are received. If the IRS approves the form, the lender will receive an acceptance notification. In some cases, problems arise, and this results in a rejection. In this situation, the processing company will recheck the form. Lenders may receive the form back if the government agency requires more information or document changes. Once the modifications are made, the processing company will resend the form.
Direct Processing Through the IRS
Lenders do have the option of sending a 4506-T Form directly to the IRS for processing. However, it can take the government agency from six to 60 days to process the request. When lenders use form-processing companies, they will receive an approval or a rejection quickly. They will also gain access to a customer service agent as well as document tracking.
Alternate forms are available for income verification, but the IRS does not support them electronically, so lenders should be prepared for a processing delay. If a lending company needs another option, they can use the basic IRS Form 4506, which is the IRS Request for Copy of Tax Return document. Lenders can also use the IRS Tax Information Authorization Form. The code for this document is 8821. When borrowers are from U.S. territories, lenders must use specified forms for their area to acquire the information.
The best way to verify a borrower’s income is to use the IRS Form 4506-T. When lenders hire a document-processing company, they’ll gain access to a borrower’s tax history quickly.