When applying for a loan, especially a mortgage loan, most people presume the process is secure. After all, you’re sitting in a nice office. The bank officer got you coffee. What could go wrong?
The reality is loan applications have become a tremendously intricate process with numerous regulations demanding borrowers verify and re-verify information that at one time was rather straightforwardly obvious and did not require much additional effort. One of these verification mechanisms is IRS form 4506-T.
What Does Form 4506-T Do?
Under IRS rules, only a taxpayer should have access to tax returns filed with the government. Among the many reasons for this rule is the obvious exposure a taxpayer would have to fraud or identity theft if someone were able to obtain details about their financial dealings, employment, income and so forth.
When a taxpayer files form 4506-T, they are granting permission for a third party to obtain copies of their tax filings. This is normally done so a third-party like a bank or mortgage company can verify the income and financial obligations of a borrower during the process of a loan application.
What are the Risks?
The problem with forms like these is they can be used by individuals and companies unknown to the taxpayer to access their financial information. Technically, each form specifies the year for each tax filing accessed. In many cases, however, borrowers either forget to date the forms or are instructed not to. This can open their entire taxpaying history to someone they’ve never met and can create an enormous security risk.
Follow the Official Instructions
The basic principles of financial security are to refuse to distribute information unneeded by a third-party and also to limit any distribution explicitly and in writing. These two principles are reflected in the instructions provided for form 4506-T, which advise taxpayers to date the forms and specify the relevant tax years.
Oftentimes it is advisable to run highly detailed transactions like mortgage applications past your personal accountant and/or attorney. Aside from the obvious benefits of having a second set of eyes on the paperwork, you may find they have advice that helps you avoid unnecessary risks.