Obtaining an IRS tax transcript sounds as though it should be simple.
A borrower signs an authorization. The lender requests the record. The IRS provides the transcript.
Anyone who has actually dealt with the process knows that it is not always that easy.
There are authorization requirements, different transcript types, different tax forms, signature rules, taxpayer-information requirements and different methods of submitting requests. A seemingly minor error can cause a rejection. A missing signature, incorrect tax period, wrong form number, incomplete recipient information or improperly prepared authorization can stop the process.
Then comes the question every lender eventually asks:
What happened to my request?
Was it received? Was it rejected? Is the authorization still processing? Is there no record available? Does something need to be corrected? Should another request be submitted—or would submitting it again make matters worse?
For a mortgage lender trying to close a loan, these are not minor inconveniences. Every day spent trying to solve an IRS transcript problem can mean another day added to the closing process.
That is why understanding how tax transcripts are obtained—and having an efficient process for obtaining them—is so important.
Why Lenders Need IRS Tax Transcripts
IRS transcripts provide lenders with an independent government-source record that can be compared with income documentation supplied during the mortgage application.
A borrower may provide tax returns, W-2s, 1099s and other financial documents. IRS information gives the lender another source against which those documents can be checked.
The goal is not simply to collect another document.
It is to answer a much more important question:
Does information maintained by the federal government support the income being used to qualify this borrower?
Tax transcripts can also assist with self-employed borrowers, business-income analysis, quality-control reviews and fraud detection.
Obtaining Transcripts With Form 4506-C
One of the primary methods used by mortgage lenders is IRS Form 4506-C, IVES Request for Transcript of Tax Return.
The IRS Income Verification Express Service, commonly called IVES, specifically allows taxpayers to authorize lenders, banks, credit unions and other parties to obtain tax transcripts for lending purposes. The IRS releases the information only with taxpayer consent.
Form 4506-C identifies the taxpayer, the IVES participant, the lender or client, the transcript requested and the tax periods involved.
Depending upon the request, lenders can obtain information such as tax return transcripts, Record of Account transcripts and Wage and Income information containing records from documents such as W-2s and 1099s.
Accuracy matters.
The IRS warns that incomplete or incorrectly prepared Forms 4506-C can be rejected. Missing required signatures, incomplete participant or client information and improperly entered tax forms are among the issues that can prevent processing.
That is where something that appears simple can become surprisingly complicated.
4506-C Processing Has Multiple Paths
IVES requests can be processed electronically or through the IRS's legacy fax system.
The IRS currently states that its WebUI and Application-to-Application electronic systems can provide real-time processing after the taxpayer electronically approves the authorization. The legacy fax process generally has an IRS-stated processing time of approximately two to three business days.
But obtaining a transcript involves more than simply pressing a button.
Someone still needs to determine what transcript is required, make sure the taxpayer information is correct, properly prepare the request, submit it through the appropriate channel, monitor the request, identify problems and securely deliver the completed record to the lender.
At mortgage volume, those steps become an operational workflow of their own.
Obtaining Transcripts With Form 8821
Another method of obtaining taxpayer information involves IRS Form 8821, Tax Information Authorization.
Form 8821 allows a taxpayer to designate an individual, corporation, firm, organization or partnership to inspect and/or receive specified confidential tax information for the tax matters and periods identified on the authorization.
This is different from Form 4506-C.
Form 4506-C operates within the IVES transcript-request system. Form 8821 establishes a tax information authorization that can allow an authorized designee to obtain specified taxpayer information.
Once a properly executed Form 8821 is recorded by the IRS, an appropriately authorized designee can obtain tax information through IRS electronic services.
But Form 8821 introduces another challenge:
The authorization itself must be processed.
The IRS accepts Forms 8821 through several channels, including Tax Pro Account for eligible requests, secure online submission, fax and mail. The IRS specifically warns that Forms 8821 submitted online, by fax or by mail may experience processing delays.
For a lender facing a closing deadline, waiting for an authorization to appear in the IRS system can be frustrating.
The Reject Problem
IRS authorization forms are unforgiving.
A person may look at a rejected authorization and see nothing obviously wrong. The IRS processing system may see something very differently.
A taxpayer name may not agree sufficiently with IRS records. A signature may be missing. A business signer may have an unacceptable title. A tax period may be entered incorrectly. Required information may be incomplete.
When that happens, the lender has to determine what went wrong, correct the authorization, obtain another signature when necessary and start the process again.
That is time the lender's processor or loan officer could be spending closing loans.
“Where Is My Transcript?”
Perhaps the most aggravating part of dealing directly with a large government system is uncertainty.
When something does not arrive when expected, somebody has to investigate.
Calling the IRS can mean navigating telephone systems and hold times. Different IRS functions handle different parts of the process. Authorization issues and transcript-request issues are not necessarily the same problem.
Meanwhile, the processor has an underwriter waiting.
The underwriter has a closing date.
The borrower has a moving company scheduled.
Everyone wants the same answer:
Where is the transcript?
Making the Process Easier
This is where using an experienced transcript-processing company such as IRStaxRecords.com can change the workflow.
Instead of requiring a lender's employees to become experts in IRS transcript retrieval, the lender submits the appropriate authorization and lets a company whose business is government-record retrieval manage the process.
IRStaxRecords.com states that it has been providing government-record verification services for more than 25 years and has processed millions of transcript requests. Its platform supports transcript ordering using both Forms 4506-C and 8821, with expedited options available for time-sensitive requests.
The practical advantage is not simply obtaining a PDF.
It is removing IRS transcript administration from the lender's desk.
A lender can securely submit the request, receive an order confirmation, track the order and receive notification when the completed transcript is available.
The experienced processing team can also identify problems before or during processing and help determine what needs to be corrected.
Instead of a loan processor asking, “Who do I call at the IRS?”
The processor has someone to call who deals with IRS transcript requests every day.
Let Loan Officers Make Loans
Mortgage operations are already complicated enough.
Processors and underwriters should be analyzing loans—not learning IRS submission procedures, troubleshooting authorization rejects, tracking government processing queues and spending valuable time trying to determine why a transcript has not arrived.
The value of an experienced transcript provider is therefore not limited to speed.
It is simplicity, expertise, accountability and visibility.
Give the authorization to people who understand the process.
Let them deal with the IRS.
Then give the lender the government-source information it needs to make the lending decision.