Why does your lender want a Form 4506-T from you?

In the simplest terms, it’s a form that lenders use to verify you filed a tax return and confirm the income you reported on your mortgage application. On the other hand, it can also prove that you didn’t file a tax return. It sounds simple enough. If you have a job that provides you with a Form W-2 every year, then you may not need to file one at all. Rather than request the Form 4506-T from you, the lender may just call your payroll office or send an employment confirmation form to your employer to confirm your work there and how much you make, but it may be a more complicated process.

It starts to get tricky and annoying if you don’t have a regular 9 to 5 job. Then the lender can get real picky about the information you provide. Are you self-employed? For how long? Did you give the lender copies of your tax returns? How do they know the tax returns are legitimate? That’s where the Form 4506-T comes in handy for them. What if you don’t work at all and your retired or disabled and don’t have a filing requirement, then the Form 4506-T is used to prove you didn’t file a tax return.

A problem that has developed over the years is the fraudulent use of the Form 4506-T by scammers and others to access personal information from the I.R.S. To counter this the I.R.S. now only sends the information to the taxpayer themselves. That doesn’t do the lender any good if they want direct access to the report. Then they have to contract with an organization that can access the data directly.

Why would lenders and the I.R.S. put such a burden on innocent taxpayers merely trying to buy a property you might ask. It is to stop scams & the kind of reckless lending standards before the financial crisis when lenders and borrowers were in a free for all arrangement and not verifying information at all in some cases.