IRS Rejection Messages Are a Reminder to Look Out for Fraud Red Flags

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.

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Some Common Pitfalls Lenders Often Run Into that Impair the SBA Guaranty

When a loan is submitted to the Small Business Administration (SBA), the agency reviews it to determine if it will honor or deny the guaranty. As part of this process, it requires lenders to submit certain documentation, including transcripts of the most recent three years of federal tax forms, which are obtained through Internal Revenue Service (IRS) Form 4506-T. The SBA needs to know that the financial information the applicant has provided to the lender matches what was provided to the IRS.

If the lender fails to submit the proper documentation, this will result in an automatic recommendation for denial of the SBA guaranty. While it is possible to later attempt to show after the fact that this failure was not relevant to a default on the loan, such efforts almost never succeed. It is necessary to have everything in order to meet the SBA’s requirements the first time around; practically speaking there will be no second chance.

So what are some of the most common errors lenders make that put their SBA guaranty in jeopardy?

  • Failure to submit 4506-T forms on the seller and obtain the seller’s transcripts in the case of a purchase of an existing business.
  • Failure to obtain the required number of years of transcripts for the applicant and/or the seller. (If the business is two years old or less, then transcripts are needed only for those years it has existed. If it is an entirely new startup business, transcripts are not required.)
  • Failure to obtain the correct transcripts when the status of the business changes during the year from a sole proprietorship to a different type of business entity. (In the case of such a change of status, transcripts of partial year tax returns from both the individual and the business entity are required.)
  • Failure to obtain transcripts for the most recent fiscal year. (If the fiscal year ended more than six months from the date of the SBA application, that year is one of the three for which transcripts are required.)
  • Failure to obtain transcripts for the Operating Company (OC) and obtaining them instead for the Eligible Passive Company (EPC).
  • Failure to reconcile discrepancies between the tax forms and the transcripts. (If there are any such discrepancies that the lender is unable to reconcile, or if there are any required transcripts the lender is unable to obtain, the lender must report this to the appropriate SBA Commercial Loan Servicing Center.)

If a lender does not follow best practices and comply with the SBA’s requirements, then in all likelihood the guaranty will be denied. Thus it is crucial to steer clear of these common pitfalls.

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Form 4506-T – How Long Does It Take?

IRS Form 4506-T
The U.S. Internal Revenue Service (IRS) provides Form 4506-T for those who seek past records of W2, 1099 and tax returns filed in previous years. Since many individuals file taxes online, these tax records may be kept in PDF files online and are not printed out in hard copy form.

Problems may occur when individuals need to present past tax records in transcript form for business and real estate purposes. These issues are resolved by the use of Form 4506-T. When past tax records are needed, file Form 4506-T with the IRS to activate a request for all past tax transcripts needed.

How Long Does It Take?
The question of how long it takes the IRS to respond to a request for Form 4506-T depends largely on the time of year the form is filed. The IRS response time may be slow during the months when income tax filings cause delays.

Normally, the IRS will provide Form 4506-T by mail within three to six weeks of the original request. This time frame should be factored into contractual issues to avoid further delays.

Once the IRS responds to the initial request, however, lenders and others requiring tax transcripts find the average time for response from the IRS to be three to five business days.

Other Issues to Consider Regarding How Long it Takes
In certain cases, the length of time it takes depends on how far in the past tax records are required to submit in transcript form. For example, when prior year’s taxes are filed promptly, the time it takes may be as few as three days. It’s important to make sure the Form 4506-T is completed properly with the signature of the taxpayer. Incomplete forms will be returned, causing unnecessary delays.

Note that Form 4506-T can be faxed. However, the fastest way to process a request from the IRS is to go to the nearest IRS office in person.

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How We Work

Many people experience frustration when dealing with taxes. It is often the source of resentment and anger. Nothing can be more annoying than having to go through the complicated IRS system. When it comes to businesses and individuals who have strict schedules, nothing is more important than making sure that taxes and all of the important facets that come with them are clear and squared away. However, getting the important paperwork you need can sometimes be a challenge. Fortunately, we can help! At 4506-Transcripts, we pride ourselves on efficiency and gaining quick approval from the IRS for our clients. This article will tell you all about our process for retrieving those important documents.

The first step is to upload your important documents to our website. From there we will assess accuracy and compliance. If the forms are verified and complete, then we will send them to the IRS. If the forms are incomplete, then they are sent back to you completed. Once the forms reach the IRS, they can either be rejected or approved. If the forms are rejected, then you will have to resubmit and try again. If the forms receive an approval notification from the IRS, then the process is complete!

We at 4506-Transcripts aim to deliver the best service possible to clients. We know that dealing with taxes and tax forms can be a huge challenge to people. Our specialty is providing excellent customer interaction and quality results. We will work with you intensely on your case from the moment we receive your forms. We pride ourselves on working one on one with our clients and make sure that they are happy with the end result. If you are someone who is looking to get their forms approved by the IRS, give us a call or submit your forms via our website. You be approved in no time and we guarantee that you will like the results!

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Form 4506-T and Tax Transcript FAQs

Q) What is the 4506-T tax form? What is it used for?

Form 4506-T is an official form used to request tax transcripts from the Internal Revenue Service (IRS). Taxpayers, after completing and sending in the form, can receive transcripts of past tax returns from specifically requested tax years. Form 4506-T allows for a third-party to retrieve tax information on behalf of a taxpayer. A taxpayer must still sign and date the 4506-T form in order for the form to be valid in the eyes of the IRS.

Q) What kinds of tax transcripts can be ordered by using form 4506-T?

Form 4506-T is used to request transcripts of certain IRS forms such as W-2s, 1040s, 1120s, 1065s, and 1099s.

Q) How does the 4506-T form differ from the 4506 form?

IRS form 4506 is used to request actual copies of past tax returns. On the other hand, form 4506-T is used to request tax transcripts. A tax transcript is a summary report of information contained within a tax return.

Q) How many years of tax information can be requested with a 4506-T form?

The IRS allows a taxpayer to request transcripts for tax returns filed within the last four years.

Q) Why might the IRS reject a complete 4506-T form?

There are several reasons why a rejection may occur. The writing on a form may be illegible or a provided address may not match the address on a requested tax return. Always make sure information is correct and readable before submitting a 4506-T form.

Q) What is the fastest way to receive a tax transcript order?

A taxpayer who submits form 4506-T directly to the IRS can expect to wait ten to sixty days for a requested transcript. However, an authorized bulk vendor can retrieve requested tax information in as little as twenty-four hours.

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