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Tax Transcripts..... What is required as we work through tax season


DallasLoanGuy
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I will leave this up for a while as it will answer a lot of questions during tax season.

 

 

 

The filing deadline for 2013 taxes is almost here. As of April 16th we will require all files to have 2013 tax returns in the file or proof the borrower filed for an extension.
In some cases we realize that tax returns may be filed but you cannot get the returns back from the IRS. We do have to attempt to get the 2013 returns on all borrowers as of April 16th. It will need to show “no return on file”. Below are the parameters that you need to follow in regards to tax transcripts and use of 2013 income.
For self-employed borrowers when the 2013 has been filed but is not available from IRS: We will need a copy of the 2013, 2012 and 2012 tax returns from the borrower (if findings are asking for two years verification). We will need a copy of the 2013 transcripts from the IRS showing “no return on file”. We need a copy of the 2012 and 2012 transcripts from the IRS (for two years required). Typically 2013 income cannot be used unless we have the transcripts from the IRS. In the following scenario you are allowed to utilize the 2013 income when a return has been filed but the IRS cannot produce the transcript for 2013:
1. The borrower’s income has been increasing and is stable.
2. We have proof the 2013 return has been filed with the IRS.
3. The income increase from 2012 to 2013 is not over 20%.
For Salaried Borrower when the 2013 is not available from the IRS: Same basic rules apply as with a self-employed borrower. We will need a copy of the 2013, 2012 and 2011 W-2s from the borrower (if findings are asking for two years verification). If the findings are only asking for one year then you would need 2013 and 2012 from the borrower. We will need a copy of the 2013 transcripts from the IRS showing “no return on file”. We need a copy of the 2012 and 2011 transcripts from the IRS (for two years required) or just a copy of the 2012 transcripts from the IRS if only one year of verification is required. Generally a borrower’s income cannot have increased more than 20% from 2012 to 2013 to use the 2013 income in the calculations. When the increase is over 20% and if we can document why the income increased through a third party we can use the income prior to the 2013 transcripts (examples are promotions where the VOE verified the promotion and increase amount, took a new position under a contract).
Borrower’s that have filed an extension: We will need proof that the extension has been properly completed and filed. Extensions with dollar amounts being left blank are not acceptable if no amount owed it should show zero. Any amounts being owed for 2013 must be documented as being paid to the IRS.
We will need a transcript request from 2013 showing “no return on file” in the file for underwriting.
Also keep in mind that amounts due on tax returns that have been recently filed will need to be documented. Please watch out for this and make sure there are sufficient funds in the borrower’s accounts to cover the amount owed on top of required down payments, closing cost and/or reserves. Or provide proof that the funds have cleared the borrower’s account prior to the date of the bank balance.
Typically by June 1, 2014 the 2014 tax transcripts will be required on all files unless there is an extension.

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