What Borrowers Should Know About A 4506-T

What Borrowers Should Know About A 4506-T

If you’re applying for a mortgage or other loan, your lender may ask you to sign an IRS Form 4506-T. This form allows the lender to request your tax transcripts directly from the IRS for the last three years. A tax transcript is a summary of the information you provided on your return such as your income and deductions.

Many people are understandably concerned about signing this document. Allowing someone to review your tax information gives them access to a lot of personal information. You have no legal obligation to sign a Form 4506-T and can refuse to do so. However, your lender has the right to require you to sign the form as a condition of your loan application. If you don’t sign the form, they can deny your application.

The reason lenders ask for this form is to prevent fraud. Loan applicants may lie about their income on their application. In some cases, they may even go as far as to fake pay stubs or tax returns. A Form 4506-T allows the lender to see what you really filed with the IRS to remove any doubt about the information you gave.

You should also be aware that falsifying a mortgage application may constitute mortgage fraud. If you lie about your income, the lender may decide to refer you to federal prosecutors. Of course, mistakes and misunderstandings can also happen. For example, you might provide your income before deductions, while the lender wants your adjusted gross income. As long as there is a reasonable explanation with no intent to deceive, your lender will work with you to correct your application.

Similarly, a Form 4506-T can raise red flags with the IRS. If you haven’t filed your tax returns, the IRS may wonder why someone is asking to see them. They may decide to conduct an audit, and if they find unreported income, they could charge you with tax evasion.

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