By: Tadayoshi Sakota, Corporate Counsel
Since the announcement of the 4506-C, First American Docutech has received many questions about how the form should be filled out. The IRS has published some guidance, but it leaves some questions only partially answered. Many of the questions have been regarding the bulletin published by the IRS in https://content.govdelivery.com/accounts/USIRS/bulletins/2ed2173. This bulletin explains that the IRS is making efforts to modernize the submission process which will include OCR software. It emphasizes the need to submit a “clean version” of the form and provides a Q&A to clear up some of the implementation questions. This article is a summary of how FA Docutech has interpreted the IRS guidance and will be implementing it into our standard 4506-C (Cx3095).
Purpose of the 4506-C and general instructions
It is important to remember the purpose of the 4506-C is to request a transcript of a tax return through the IVES system. If lenders wish to request the actual tax return, they will need to use IRS form 4506.
The form contains bold notes for those requesting the transcript not to sign unless all applicable lines are filled, and that the form may be rejected if it is incomplete or illegible.
What is meant by a “clean version”?
The IRS bulletin requires a “clean version” to submit the form through the IVES system. The bulletin explains that if a document within a batch contains clarifying circles, then the entire batch will be moved to manual processing and remain worked together as a batch. Many of the bulletin FAQs discuss making marks, circling specific items, writing in the margins, or checking more than the necessary checkboxes. These are considered “editing marks” by the IRS and would re-route the submitted document to manual processing. The bulletin linked above provides several visual examples.
How does the 4506-C instruct the form to be filled out?
Many requests and questions have been concerning lines 6 and 7 on the 4506-C (for reference, the model form is found here: https://www.irs.gov/pub/irs-pdf/f4506c.pdf). Line 6 limits the use of each 4506-C to only one tax return transcripts form number per request. Line 6a states that transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120-A, Form 1120-H, Form 1120-L, and Form 1120-S. Each of these forms are tax returns; for example, form 1040 is a personal tax return, and form 1065 is a partnership tax return. Line 6 is used to request one transcript and limited to the aforementioned types of tax return transcripts.
There are three checkboxes associated with lines 6a-6c. Only one box can be checked for lines 6a-6c. The reason for this is that it helps in sending the request to the correct place. If lenders are requesting a return transcript, then the checkbox associated with line 6a should be the only one checked. If lenders are requesting information as to the financial status of the account, then box 6b should be checked. If lenders are requesting both tax return transcripts AND information about the status of the financial accounts, then box 6c should be checked.
Because only one form can be requested per 4506-C, Docutech, by default, will configure Cx3095 to print only one copy of the 4506-C. Cx18927 will also be available upon request and can accommodate up to four copies per borrower to print. If clients wish to use this form, please contact Client Support for set up. Also, due to the “clean version” guidance, we interpret that the form and instructions anticipate only one checkbox will be checked in lines 6a-6c, but we will not suppress the checking of multiple boxes.
Line 7 covers W2/1099s associated with the tax return transcript request. The form explains the IRS can provide a transcript that includes data from the information returns. It makes sense but is not clear as to whether the W2/1099s requested on line 7 are associated with a specific tax return or whether it applies to any and all W2/1099s associated with the taxpayer. (Potentially, a taxpayer owns a partnership [Form 1065 tax return] and that partnership gets 1099s in the course of its business).
Lenders will be able to check the line 7 box on the 4506-C. This allows lenders the ability to request W2/1099s for each tax return transcript being requested.
As in the past, the checkbox where the signatory attests that they have read the attestation clause still requires the taxpayer to read, and upon reading make a declaration that they have the authority to sign the Form 4506-C.
Because the IRS has strict rules Docutech will continue to follow the announcement here (https://compliance.docutech.com/2015/10/27/document-change-irs-form-4506-and-4506-t-changes/)
As announced in the bulletin, the IVES software is expected to go live in October 2021 and will require the clean submissions by January 1, 2022.