Every lender is required to get the last two years of tax returns from every borrower for almost every loan. We then have to prove that the tax returns are authentic and that they were actually filed with the IRS.
This is why every borrower has to sign an IRS Form 4506-T as part of their loan disclosures. It is the formal authorization that allows lenders to request tax transcripts. The tax transcripts are summaries of the tax returns that show the filer’s status (married, single, etc.), Adjusted Gross Income, Taxable Income, etc. Ti he information has to exactly match the copies of the tax returns in a lender’s file.
Lenders are required to request transcripts from the IRS first before a borrower can. Borrowers are only allowed to request the transcripts directly if the IRS “rejects” a lender’s request. This happens relatively often, not b/c the tax returns are fraudulent but b/c there is usually some minor inconsistency with respect to the information on the 4506-T and the information on the tax returns.
Borrowers sometimes get frustrated when we request their assistance in getting the tax transcripts at the 11th hour b/c they wish we “had asked sooner.” But, we are unable to ask sooner b/c we have to wait for the IRS rejection first before we can ask a borrower for assistance, and the IRS moves slowly.
In situations where borrowers are in the process of filing taxes, some lenders will allow them to file the taxes in person at an IRS office and get the returns “stamped” by the office. These stamped returns can then be used in lieu of the tax transcripts. Not all lenders allow this, however. Some lenders still require tax transcripts for newly filed returns, and that can take from three to eight weeks.
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