New Taxpayer Law Update: IRS Transcripts and Borrower Consent Published January 7, 2020

On July 1, 2019, The Taxpayer First Act of 2019 was signed into law, which aims to broadly redesign the Internal Revenue Service.

Many lenders are potentially affected by the component of the bill that focuses on borrower consent for the purpose for which their tax return information will be used. This specific provision of the Act has an effective date of December 28, 2019, and applies only to disclosures made by the IRS after this date.

Historically, lenders have been able to obtain tax return transcripts by way of the IRS forms 4506-T or 8821 authorizations for disclosure. While this accounts for taxpayer consent to have their information disclosed to the lenders, it doesn’t account for the re-disclosure that occurs when many lenders share the borrower’s information with additional parties – mortgage insurers, affiliates, servicers, secondary loan purchasers, etc. 

The Taxpayer First Act, Section 2202 modifies the tax code and now necessitates that organizations inform the taxpayer of the express purpose for which tax return information will be used. In addition, it’s now necessary that borrowers provide express permission to allow the sharing of return information with other lending stakeholders. Merely having the forms 4506-T or 8821 signed will no longer suffice to meet these new consent requirements. 

At this time, the IRS has indicated that they don’t intend to provide a standardized consent agreement related to re-disclosing or sharing tax return information with other parties. This makes sense given that each lender has varying business practices as they pertain to the re-disclosure of borrower tax return information.

Since Tax Guard is given expressed permission to acquire and share the tax return data with one party, the lender, re-disclosure consent doesn’t apply to our processes at this point. The consent agreement exists between the lenders and their clients. It is recommended that lenders consult with their legal/compliance teams to ensure compliance with the required consent documentation for the updated law. 

Also, it’s worth noting that these consent disclosure agreements should be stored in the lender’s files and do not require submission to the IRS. Therefore, Tax Guard doesn’t need to receive a copy of the consent documentation in order to complete an order for tax information.

As always, guidelines, policies, and interpretations of laws can be a moving target, so please contact us with any questions regarding the Taxpayer First Act of 2019.

Please note: There are exceptions to all scenarios presented above and this should not be interpreted as legal advice.

Posted By: David Bohrman

As the VP of Marketing, David is responsible for driving overall marketing strategy for Tax Guard including brand positioning, go-to-market execution, and lead generation programs. For the past 15 years, David has held senior positions in early growth and mature companies, leading marketing, operations, and business development teams. Prior to Tax Guard, David was the Director of Marketing of one of the largest tax consulting firms in the country. He holds a B.A. in English and Philosophy from the University of Vermont.