Does the tax deadline extension issued as a result of the COVID-19 emergency affect documentation requirements?
Lenders should continue to obtain the most recent year’s tax return filed by the borrower as indicated in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns. However, lenders are not required to obtain a copy of the IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) filed with the IRS, until the point at which the tax deadline extension has expired. Accordingly, lenders are not required to review the total tax liability reported on IRS Form 4868 and compare it with the borrower’s tax liability from the previous two years as a measure of income source stability and continuance.
For more information, refer to the published Lender Letter LL-2020-03, Impact of COVID-19 on Originations.