Year-End Update to Taxpayer First Act (HR 3151) | Subtitle C, Section 2201 & 2202

Originally published on Dec 3, 2019
*Revised December 24, 2019

The Taxpayer First Act became public law on July 1, 2019. 

Our last notification provided information on Section 2201 regarding a proposed increase in the IRS transaction fee effective on January 1, 2020. 

This notification provides the approved fee increase amount as well as information on Section 2202, which limits redisclosures and uses of consent-based disclosures of tax return information. 

Here are the recent updates as of December 24, 2019:


OVERVIEW:
  • December 28, 2019: New Taxpayer Consent Language must be implemented.
  • January 1, 2020The IRS transaction fee increase from the current $2.00 per tax year to $5.00 per tax year has been delayed and will become effective on March 1, 2020.
  • New IRS 4506-C form to replace the current IRS 4506-T form. The new form and implementation date are still pending.



Section 2201 ("Additional User Fee")

This section addresses the "Modernization Disclosure of IRS Taxpayer Information for third-party income verification" requiring the IRS to 1) develop an automated online processing system for any 4506-T requests with qualified disclosures and 2) return the IRS tax transcript data in close to real time.

The cost analysis to pay for the IRS Application Program Interface (API) system upgrade modernizing transcript processing will define the NEW ADDITIONAL USER FEE. Turn-times will reduce from days to within a second.

Funding for this automated system will be accomplished by the IRS increasing the current fee of $2.00 per transcript year to $3.00**.

** UPDATE: The user fee per (IVES) transcript request will actually increase from $2.00 to $5.00 effective March 1, 2020. 

The user fee increase does NOT apply to transcript requests that fall outside the definition of a "qualified disclosure". For the purposes of this section, the IRS  defines qualified disclosures as "a person seeking to verify the income or creditworthiness of a taxpayer who is a borrower in the process of a loan application".

NCS’ SVP Cecil Bowman, is one of 8 IVES Working Group advisors involved in the implementation discussions.  Bowman estimates tax transcript volume via the API will dramatically increase with the removal of antiquated fax delivery mechanisms.

After the IRS announced on November 14, 2019 that the change would likely be an extra $1.00, the $2 user fee increase to $5 came as a total surprise to Bowman.

“We’re disappointed at the number the IRS has arrived at to deliver the requirements of the Taxpayer First Act", Bowman comments. "This is primarily being shouldered by the mortgage industry as the principal user of IVES. Since the service is doubling the surcharge fee, we believe a portion of the development costs should be deferred until the launch of the service. We’ll be quick to re-open communication channels on this topic, but we’re disappointed at another turning point for income verification and the IRS hasn’t listened to the industry.”

Section 2201 mandates the tax transcript API must be delivered by 2023. Following the 2023 date, the expectation is that the IRS user fee of $2.00 per transcript year will dramatically decrease due to efficiencies of the new system.



Section 2202 ("New Consumer Consent Language")

This section limits redisclosures and uses of consent-based disclosures of tax return information. The current method of taxpayer consent is having your borrower sign the 4506-T. Section 2202 modifies the existing tax code and requires that you inform the borrower of the “express purpose” for which their tax transcript data will be used. In addition, Section 2202 will now require that borrowers provide “express permission” to allow your organization to share their tax transcript data with other loan participants.

IMPORTANT NOTICE: The new Taxpayer Consent language disclosure form is only for your files and is NOT to be sent with each IRS Form 4506-T request. The IRS does not require that the new Taxpayer Consent disclosure form accompany each 4506-T.

It is suggested that you consult with your document prep companies and LOS providers to ensure compliance with Section 2202. The revised Taxpayer Consent Language must be implemented by December 28, 2019.


MISMO has created a model Taxpayer Consent Language: http://www.mismo.org/standards-and-resources/additional-tools-and-resources/taxpayer-consent-language

Should you have further questions you may contact customer service at 800-582-7066.

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