When filing for student financial aid, school financial aid departments require official proof of income. The necessary proof comes in the form of an IRS tax document called a tax transcript. There are several methods available to receive this document, three of which can be ordered online: an online request to download the transcript online, an online request to send the transcript by mail, and (in the case of no taxes filed) an online request for a non-filing letter. You can also order the transcript by telephone or by mail. All these methods are free of charge.
When using any of these methods to order tax transcripts, the student must include their Social Security Number (SSN), date of birth, their street address, and ZIP Code as is currently on file with the IRS. The student must also request the tax transcript from the correct tax year, which is the previous year’s taxes filed with the IRS.
No matter what method you use to obtain your tax transcript, it is your responsibility to properly fill out the form and deliver it to the financial aid office of the school of your choice. Schools cannot accept your tax transcript directly from the IRS.
When filing a request for tax transcripts by the use of the paper method, simply download the pdf from the IRS site of form 4506T or 4506T-EZ. You will need to fill out lines 1-4. Line 5 allows you to have the IRS send the tax transcript to a third-party. Do not request the transcript be sent to the school for which you are filing. The IRS will send the tax transcript to the address they have on file, per tax law.
After receiving the transcript, the student must sign their name to each page in acknowledgment that the information is factual and correct. Make a copy of the document for your records and deliver the tax transcript to your financial aid office.
Filing taxes is difficult to understand, with more than four hundred various tax forms to report pertinent financial information. Failure to report information, file returns correctly, and submitting them on time may all result in hefty penalties levied by the Internal Revenue Service. Knowing current and past years’ tax filing information is equally important in many situations.
Tax form 4506-T allows businesses to gain access to tax forms filed in previous years. It may seem like previous years’ tax forms are not important; however, obtaining official copies of these returns is absolutely necessary in several situations.
When corporations go to court, disputes usually consider past levels of income in determining reasonableness, materiality, and dollar amount of potential damages. Filing a 4506-T is the official method of getting past years’ tax returns for use in legal situations. Demonstrating that taxes were paid in full usually hinges on income earned and taxes paid in prior years.
Proving income to creditors and lenders
Securing financing for any purpose requires businesses to demonstrate to lenders that assertions about expected income are true. For large-scale corporate lending, official proof from the Internal Revenue Service is often necessary as part of supporting documents for securing loans. Obtaining tax returns from prior years using a form 4506-T is also valuable in refinancing outstanding balances and lowering current interest rates.
Better record keeping
Whenever a corporation’s employees are uncertain about prior years’ reported income, corporations can file a 4506-T to assure their accounting functions of various information reported. If estimates are changed or new records are realized, amendments to prior years’ tax returns are usually necessary.
Reduce likelihood of estimated tax penalties
Corporations are required to file taxes for times a year. These taxes are estimated, which means they are based on prior years’ incomes. Understanding exactly how much a corporation earned in prior years is necessary for estimated tax payments.
Agencies like the USDA have strict rules concerning income verification for home loans. In the past, it was standard practice for lenders to submit a borrower’s tax transcript ad associated IRS Form 4506-T Request for Tax Transcript. Delays and rejections have become more frequent recently. This has led underwriters of mortgages to question the need for this documentation prior to closing.
Part of the problem arises from delays between the time a 4506-T is submitted and the time the transcript arrives. The Internal Revenue Service cites budget cuts as a primary reason for slow turnaround times.
A more serious problem is that the IRS is rejecting some 4506-Ts. This is a consequence of policy changes intended to prevent fraud and unauthorized access to taxpayer information. The IRS does not want identity thieves using third party tax transcript requests to gather confidential information. When a 4506-T is submitted with incorrect information like an erroneous Social Security number, it is rejected. The lender gets the form back stamped with the term “Limitations.”
Faced with the prospect of continued delays and rejections, agencies and lenders are seeking alternative ways to verify borrower’s income Rob Crhisman says there is no universal answer. Fannie Mae has clarified its existing policy. Fannie Mae requires the 4506-T tax transcript. This requirement doesn’t have to be met prior to closing. The rule is satisfied as long as the documentation is included in the quality control process an underwriter must follow after closing.
Envoy Mortgage has taken a different approach. This stakeholder has reduced the need for the 4506-T by accepting a borrower’s W-2 forms. This substitution is limited to persons who have no income that is not reported on the W-2 form.
In some cases a tax transcript may be required prior to closing. This may not be the case in other situations. The wise course is to check with the agency or lender.
Freddie Mac customers have reported that, a few times, requests submitted through the IRS Form 4506-T have been returned with a rejection code, “Limitations.” These sorts of rejections combat identity fraud and stop unqualified access to taxpayer info.
Rejections of Form 4506-T might indicate red flags like the accuracy of borrowers’ incomes and tax info and / or the SSNs that qualify for loans. Please, for your own good, remember to treat these warnings as seriously as any other fraud warning.
Required for after-funding quality control programs, completing the IRS Form 4506-T is a very important and tried-and-true means of combating mortgage fraud. For further information, examine Section 48.5 of the Single-Family Seller/Servicer Guide.
To ensure the quality of loans Freddie Mac buys, Sellers and Servicers must take all action to clear red flags often found in fraudulent schemes focused on loan origination. They should become comfortable with the risk of lending money. They must also report any instances of fraud or suspicious activity according to the instructions in Single-Family Seller/Servicer Guide Section 7.3 on receiving the rejection message “Limitations” for loans already purchased. Freddie Mac does not need alternative documentation for transcripts refused with this code during post-closing quality control. The following document will help you learn what to look for, how to report fraud or suspicious activity, and preventative steps.
The Financial Fraud Investigation Unit is at the fore of mortgage fraud mitigation. Your efforts toward the same is critical, so thank you for being vigilant.