Lenders using IRS system must pay for upgrade, but it may be worth it
Fees that new legislation will force the Internal Revenue Service to charge users for system modernization will fund improvements that could dramatically shorten processing times for mortgage companies' tax transcript requests.
Vendors have made it possible to efficiently fill out 4506-T requests through user interfaces, and the government agency does allow the forms to be electronically signed, but antiquated IRS operations on the back end take days to process forms.
"Right now it'll take close to 48-72 hours, and it'll fluctuate upward from there. So we're looking at trimming that way down," said Curtis Knuth, president and CEO of National Credit-reporting System, a vendor involved in implementation discussions.
Responses to transcript requests currently take days because the Internal Revenue Service has been handling them using a system that relies on faxed-in forms and data keyed in for batch processing, Knuth said.
The fact that the system can only process a limited number of requests at a time has been particularly problematic when government shutdowns create backlogs.
Part of the Taxpayer First Act aims to resolve these concerns by directing the IRS to replace the fax machines it currently uses to receive forms with an automated system. The upgrade must be done within the next couple of years.
For the mortgage industry, that may be worth the fees paid, depending on how large they are.
"We're probably not going to talk about anything that's a huge number," said Knuth.
But he said the cost to date is unknown, and will depend upon how the upgrade gets implemented. That's something the IRS and mortgage industry groups are looking for input on.
Knuth would like to see the current form used to process transcript requests preserved in the implementation.
"I'm certainly an advocate of continuing to use the 4506-T form, I think it works well. It has all the necessary elements and if you want to electronically sign it, you can," he said.
In addition to funding and mandating improvements to the Income Verification Express System, the Taxpayer First Act calls for lenders to implement new transcript authorization requirements related to the redistribution of information.
Mortgage companies request access to tax transcripts to help determine borrowers' ability to repay, which lenders became liable for post-crisis.