Uses for a 4506-T Form
Official tax forms are multipurpose documents. For instance, the IRS 4506-T Form can be used to verify a borrower’s income as well as his or her tax information.
Income Verification
When lenders borrow through Fannie Mae, the division requires them to complete the IRS 4506-T Form during or prior to a loan closing. In some cases, the lending department needs a borrower to fill out several forms based on the records required for income confirmation. The lender will also need to document the request to acquire an executed IRS 4506-T Form with the government division.
Tax Information
Lenders can use federal tax information to record a borrower’s income for loan qualification. To do this, the lender must use the IRS 4506-T Form to contact the IRS directly with the intention of attaining copies of a borrower’s federal income tax documents. Qualifying documents include wage or income forms like W2s, 1098s and 1099s. Other approved documents consist of forms like the 1040, 1040EZ or 1040A.
Some circumstances require copies of the official returns, forms or schedules because the transcripts of a tax return will not display enough information to verify the borrower. For instance, the lender will need to acquire actual copies of Schedules B through F along with business returns, Schedule K-1 and Form 2106. The agency does not require the forms or schedules in situations where the borrower’s income displayed on the applicable document is positive and when the income verified by that particular form or schedule is not the one needed to qualify the person for the loan.
Other Options
The IRS 4506-T Form is one of the easiest forms to use when lenders need to acquire electronic documents of a borrower’s income tax details. Lenders can also use the IRS Tax Information Authorization Form or the IRS Request for Copy of Tax Return document. However, the IRS does not support either of these forms electronically, so lenders should be prepared for a time delay when requesting income confirmation this way. The IRS Short Form Request for Individual Tax Return Transcript is another approved document, but regulations state that it can only be used to request transcripts of the IRS Form 1040.
Form Submission
Lenders can complete the IRS 4506-T Form to request documents for up to four years or four tax cycles. In addition, lenders must use separate forms for each document request. For instance, two IRS 4506-T documents must be filled out when income verification is needed for a borrower who is self-employed and has personal and business tax returns.
Finally
When lenders request income or tax verification by using the IRS 4506-T Form, the company must store the document in the loan file for a quality control review.