The Internal Revenue Service’s (IRS) 4506-C Form is a critical tool that mortgage lenders and other financial institutions use to obtain tax transcripts with the consent of the taxpayer. First implemented in 1988 as a fraud prevention measure, the IRS has released several versions of the form and upgraded its process over the last few decades.
Now, with the 2022 4506-C Form being the only version accepted by the IRS, mortgage lenders are faced with a new process, new requirements, and, in turn, many new questions. Fortunately, you can find the answers you’re looking for here.
A Brief History of Form 4506
Before we jump into what’s new with the latest version of the form, let’s take a look at where it all started…
The original version, known simply as the 4506 Form, was used to obtain complete copies of tax returns from the IRS. It was built on a print and mail process that was inefficient and became antiquated.
When the IRS released the 4506-T Form in 2018, it upgraded to an Income Verification Express System (IVES) fax-based service and replaced the full tax return copy requirement with a transcript-only one. The goal behind this update was to improve wait times and overall efficiency. However, that process, like the one before it, proved to be less than ideal for all parties involved in the new digital age of mortgages.
This dissatisfaction led the IRS to make additional changes. In 2019, the first version of Form 4506-C was introduced, and it didn’t take long for the IRS to move toward a more streamlined process. In 2021, an automated process for accepting 4506-C transcript request forms was introduced as a method for increasing efficiency.
This brings us to present day. As of March 1st, the IRS is only accepting a new, October 2022 version of Form 4506-C from IVES participants.
Perhaps the most notable difference between the previous 4506-C form and the 2022 version is that the new one is readable by optical character recognition (OCR) technology.
Why is OCR readability important? Because the automated 4506-C Form process that was introduced in 2021 leverages this technology. It enables the forms to be processed without manual review, resulting in faster turnaround times and minimized processing mistakes.
The only catch? The new system is highly sensitive to any additional marks or errors, so individuals must avoid making any unnecessary notes or marks on the form to ensure accurate and timely processing.
The new 4506-C form has an itemized layout in which each piece of discrete data is assigned its own box with compact formatting. In contrast, the previous version of the form was simpler and allowed individuals to circle fields instead of filling out independent lines of information. This was possible in the past because human beings were processing the forms.
The shift to an itemized layout facilitates the use of OCR technology to automate – and expedite – the processing of forms.
New Fields & Checkboxes
The 2022 4506-C form also brings new fields and checkboxes, including fields 5b and 5c, which detail customer file numbers and unique identifiers. Sections 6, 7, and 8 have been updated as well. They now include new checkboxes to identify transcript requests, along with e-signature and e-filing status.
The reason behind these updates is simple: OCR readability. In order for the OCR technology to be able to read the form and provide exactly what you’re asking for, very specific information is required.
For the same reason, one form must be submitted per product ordered. So, you will need to fill out one form for, say, a 1040 and a completely separate form for anything else you need. This should be kept in mind when completing sections 6 through 8.
Additionally, signatures are now required for any taxpayer listed and the IRS notes taxpayers should “only list a spouse if their own transcripts will be requested and they will be signing the request.” With this update came new e-sign checkboxes at the end of the form.
Learn More about the New 4506-C Form
The latest changes to Form 4506-C require careful review. Incorrectly filled fields, marks outside itemized formatting, or failure to properly review new fields and checkboxes could slow processing time or require re-submission of the form.
In our latest webinar, we explain the changes, requirements, and benefits of the new 4506-C. The webinar even walks you through – step-by-step – how to properly complete the form, with detailed instructions for the new fields and checkboxes.
The best part? You can watch the webinar on-demand at any time to learn more about the new 4506-C Form. You can also contact MetaSource with any questions or concerns. The MetaSource Mortgage Team is made up of experienced industry professionals who are always happy to help – whether you need information on our mortgage compliance services or answers to specific questions.