The IRS IVES Request for Transcript of Tax Return (IRS Form 4506-C) gives the lender permission from the borrower to obtain tax transcripts from the IRS.
Fannie Mae requires lenders to have each borrower whose income (regardless of income source) is used to qualify for the loan to complete and sign a separate IRS Form 4506-C at or before closing. EXCEPT that this requirement does not apply if all of the borrower’s income has been validated by the Desktop Underwriter (DU) validation service. This aligns with the Selling Guide policy that does not require lenders to obtain tax transcripts as part of the quality control process in these cases. If all borrower income is not validated through the DU validation service, the lender must obtain the completed and signed IRS Form 4506-C. The lender has the discretion to determine at what point in the process it is obtained, understanding that the form is only valid for 120 days from the date of the borrower’s completion/signature.
Some lenders may submit the Form 4506-C to the IRS to document borrower income, but the intent of this policy is to validate the income documentation provided by the borrower and used in the underwriting process.
Fannie Mae does not require lenders to obtain tax transcripts from the IRS prior to closing, but does require that obtaining tax transcripts be part of the lender’s post-closing quality control processes, unless all borrower income has been validated through the DU validation service.
If the lender chooses to obtain tax transcripts from the IRS prior to closing, the transcripts received must validate the applicable income documentation used in the underwriting process.
For more detailed information, refer to Guidelines Related to the IRS Form 4506-C and Tax Return Transcripts.