Banks request to confirm preperation of prior tax returns

[Hamacher]

Can anyone tell me why banks are starting to have us write letters stating that a client has been self employed for a certain number of years or like today I had a bank just call me and want to confirm that I prepared their tax return for 3 years. She has copies of all the tax returns which I signed. What more do they really need. I asked the lady from the bank and she was unable to provide me with an answer.

[Koss]

Banks

I've heard of this before, although I have not actually had this experience myself.

It's probably an internal compliance measure within the bank. They may be trying to verify that the returns were in fact prepared by the person whose name appears in the preparer block.

It's too easy for borrowers to make up fake tax returns using off-the-shelf software, or even make honest mistakes that are very serious mistakes.

Somehow, the banks believe that a return prepared by a pro is more reliable than a DIY return. What a surprise...

BMK

[ChEAr$]

These requests of lending institutions are in response to our continued refusals to sign an affidavit or letter, or whatever saying that taxpayer is now self employed.

[Koss]

Self-Employment Verification

I don't have a strong opinion one way or the other. Certainly the tax pro is not required, by any stretch, to provide such a letter.

Whether the bank will actually deny the loan, and whether the tax pro would lose the client, are different questions.

It feels like this is a backlash against the whole scandal associated with the subprime mortgage industry. They used to do loans with no verification of income, called "stated income" loans. In the break room, they were called "liar loans."

The bank is looking for third-party verification that the person is really self-employed. And I can see where this might be important, particularly with a sole proprietor who may not have an EIN, and may not have a separate bank account for the business... which is a bad way to do it, but it doesn't mean he isn't self-employed.

I guess my point is that for some sole proprietors, the Schedule C is the only proof they have that the business exists and that they have the income. So the bank is trying to make sure they aren't making it up out of whole cloth.

BMK

[dan doshan]

This was really common 4-5-6 years ago or so. Then didn't see such requests from banks for a long time. Now they're starting again.
We here can't or won't confirm that the client is self employed. Only that we have prepared the return based on information furnished to us by the client. Don't promise or certify anything. After all, we can't be certain the client isn't making up some fictional business either.

[Jiggers]

All I will write in a letter is that I have prepared Mr. & Mrs. Taxpayer's return since XXXX.

I do not send to the bank or any place else.

I give it to the client to deliver.

Remember that to disclose anything to anyone about a return requires the disclosure authorization.

I do not address the letter to a specific bank or mortgage company. I just address it as "To Whom it May Concern" and then the one line statement that "I have prepared Mr. & Mrs. Taxpayer's returns since XXXX" and sign my name.

I have not audited the taxpayer's information and he is the one that has told me that he is self-employed.

[tsevera]

I don't have a strong opinion one way or the other. Certainly the tax pro is not required, by any stretch, to provide such a letter.

Whether the bank will actually deny the loan, and whether the tax pro would lose the client, are different questions.

It feels like this is a backlash against the whole scandal associated with the subprime mortgage industry. They used to do loans with no verification of income, called "stated income" loans. In the break room, they were called "liar loans."

The bank is looking for third-party verification that the person is really self-employed. And I can see where this might be important, particularly with a sole proprietor who may not have an EIN, and may not have a separate bank account for the business... which is a bad way to do it, but it doesn't mean he isn't self-employed.

I guess my point is that for some sole proprietors, the Schedule C is the only proof they have that the business exists and that they have the income. So the bank is trying to make sure they aren't making it up out of whole cloth.

BMK

I totally agree. Having used to work at Citibank, we were 'forced' to show proof we were lending to subprime groups. Now, they are attempting to show "due dilligence" in validating the client is or has been in business for themselves.

As to whether to provide documetnation is up to each provider.

[JohnH]

I don't have a strong opinion one way or the other. Certainly the tax pro is not required, by any stretch, to provide such a letter.

Whether the bank will actually deny the loan, and whether the tax pro would lose the client, are different questions.

It feels like this is a backlash against the whole scandal associated with the subprime mortgage industry. They used to do loans with no verification of income, called "stated income" loans. In the break room, they were called "liar loans."

The bank is looking for third-party verification that the person is really self-employed. And I can see where this might be important, particularly with a sole proprietor who may not have an EIN, and may not have a separate bank account for the business... which is a bad way to do it, but it doesn't mean he isn't self-employed.

I guess my point is that for some sole proprietors, the Schedule C is the only proof they have that the business exists and that they have the income. So the bank is trying to make sure they aren't making it up out of whole cloth.

BMK

I also heard them called "ninja' loans - as in "no income, no job".

[taxea]

Can anyone tell me why banks are starting to have us write letters stating that a client has been self employed for a certain number of years or like today I had a bank just call me and want to confirm that I prepared their tax return for 3 years. She has copies of all the tax returns which I signed. What more do they really need. I asked the lady from the bank and she was unable to provide me with an answer.

Here we go again with the banks asking us for information that they either already have or that we are not the correct source to be asking. I would wait for the phone call and then I would respond with "do you have a copy of the return? Is my information on the bottom of page 2 of the 1040?"

Just as an aside...I don't sign client copies and I recommend to the client that they not sign them when they are providing them to a third party. The reason for this is that the client copy, though a replica of the filed copy, is not the original filed copy which was e-filed and therefore does not require a manual signature. The only time I or the client signs a copy of the return is when the return is requested by the IRS. They want a signed copy.

This is the explanation I would give to the third party, if asked, sans the IRS info stated.

If they don't have a copy of the return my response is, "In keeping with confidentiality rules I can neither confirm or deny that this person is my client."

[DaveO]

I say something like “I have prepared Mr/MS XXXX’s return for XX years and have filed Schedule “C” consistent with self employment. Mr/MS XXXX has provided me with the information to complete their return and has represented themselves as a self employed roofer, hair dresser or whatever.

[Burke]

I guess my point is that for some sole proprietors, the Schedule C is the only proof they have that the business exists and that they have the income. So the bank is trying to make sure they aren't making it up out of whole cloth.BMK

In some localities, including mine, a business license must be obtained and gross receipts reported for Business & Professional Lic Tax purposes. Also, a business bank account statement would provide the same corroborating information to the bank. So there are other sources for this, which in my opinion, would hold more weight than a Sche C.

[JohnH]

I usually refuse to write them, but I did give in and write one a couple of weeks ago. In spite of the fact that it basically said "I put on the return what the client told me and I don't have a clue whether it's true", the lender liked it.

I did include a paragraph at the end telling them how they can get the info from IRS if they are REALLY INTERESTED in accurate information. If I ever use it again and if the lender comes back asking for more, I'm just going to send them the form 4506-T without further comment (except maybe a copy of the pargraph form the previous letter).

[Burke]

I went through this [mortgage] loan process myself, and the financial institution's representative prefaced everything additional they requested with "our underwriters require...." Further inquiry on my part indicated it wasn't them, so much as it was the entities they were selling these loans to, that were forcing such requirements and declarations as documentations of "proof." In today's job market, a W-2 is no more indicative of future income than a Schedule C.

[taxea]

I went through this [mortgage] loan process myself, and the financial institution's representative prefaced everything additional they requested with "our underwriters require...." Further inquiry on my part indicated it wasn't them, so much as it was the entities they were selling these loans to, that were forcing such requirements and declarations as documentations of "proof." In today's job market, a W-2 is no more indicative of future income than a Schedule C.

You are quite right about that...the underwriters requiring the information. I had one mortgage loan officer tell me that the required request for the transcript wasn't used and if it was it was only to verify the information on the submitted tax returns was the same as the filed return. If that is the case then why not just submit the request for a transcript directly to the IRS. She said they rarely make use of it when the return copies are submitted.

As for the requests by the underwriters I will neither confirm or deny information which I have no personal knowledge of (the request for verification that the TP runs a business). Even if I have seen the TP working at his business I tell them that the Sch C is indicative of the business and it is not my job to verify the information provided by the TP. My 7216 indicates tha the third party wanted the copy of the tax return and that is all I am required or obligated to provide. And I don't put it in writing.