Taxpayer Consent Language

Background Information and Implementation Guidance

Background InformationEarlier this year Congress passed H.R. 3151, known as the Taxpayer First Act ("the Act"), and the Act was signed into law on July 1st.  The Act is a broad reform of IRS systems to modernize technology platforms and to better protect taxpayers' private information.  Included within the broad provisions of the Act are two sections that impact the lending industry through the modernization of third-party income verifications (commonly known as the 4506-T process).   

The first change, Section 2201 of the Act, mandates that within 3 ½ years from the enactment date, the IRS automate in as close to real time as possible the 4506-T tax transcript request/response transaction.  This is a welcome change from the current manual process with 48 to 72-hour turn times and the numerous inefficiencies and mistake-prone issues with a manual process.  The industry is currently engaged with the IRS to provide requirements related to Section 2201.  

The second change to Section 2202 of the Act, materially changed the taxpayer consent requirements that allow lenders and lending industry participants to utilize transcripts.  The exact language added to the act is as follows: Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.

That said, it is anticipated that lenders and industry participants will create new disclosure forms and/or add to existing disclosures that borrowers execute during the 3-day origination disclosure period, and/or within the closing disclosure package.   

For many years the lending industry has used a specific provision in the Internal Revenue Service code to order transcripts.  Having borrowers sign form 4506-T has always sufficed to indicate taxpayer consent. Section 2202 modifies the tax code and now necessitates that organizations inform the taxpayer of the  "express purpose" for which tax return information will be used.  Further, this Section now necessitates that borrowers provide "express permission" to allow the sharing of return information with other lending stakeholders.  Just having form 4506-T signed will no longer suffice to meet these new consent requirements.  Furthermore, the IRS has expressed that they are not going to provide updated language to the 4506-T, and they are leaving it to the industry to ensure proper taxpayer consent is obtained.  

MISMO's Taxpayer Consent Language was created to provide a consistent way for the mortgage industry to comply with the new requirements which goes into effect on December 28, 2019. This language provides consent for both express purpose on the usage of the tax information as well as gaining express constant to share the tax information with third parties, a common practice in the mortgage industry.

Implementation Guidance: The Taxpayer Consent Language should be considered model language and used as a starting point. It is anticipated that lenders and other industry participants will create new disclosure forms and/or add to existing disclosures that borrowers execute during the loan origination process.  Lenders and industry participants are free to use the language as-is or modify the language to meet compliance expectations.  Lenders, GSEs, 4506-T fulfillment vendors, mortgage insurers, and due diligence firms participated in the development of the MISMO Taxpayer Consent Language.  It is recommended that lenders and industry participants consult with their investors, insurers, servicers, and other loan participants to thoroughly understand loan salability and compliance rules that must be adhered to when originating and closing a loan.  It is further recommended that lenders consult with their document preparation and loan software providers to ensure compliance with the law.

To Vendors, Product Providers and Others That May Develop Software for Sale MISMO does not require that any reference to MISMO or its license be made on any consumer facing form, website, or other presentation that utilizes the Taxpayer Consent Language.

The MISMO Taxpayer Consent Language is provided under the MISMO Distributor License.  If your organization includes the Taxpayer Consent Language in a software application or other product that you provide to other organizations, you must include the following notice in your end user documentation and your source code.  

"This software product includes software or other works belonging to The Mortgage Industry Standards Maintenance Organization, Inc. ("MISMO") that are subject to either the then-current MISMO Distributor License published at www.mismo.org or any subsequent applicable version of the MISMO Distributor License when the software product is produced or used for non-commercial purposes, or the then-current MISMO Distributor License published at www.mismo.org or any subsequent applicable version of the MISMO Distributor License, when the software product is produced or used for commercial purposes."

In addition, by downloading and using the MISMO Product, each Distributor agrees that, when providing any product or service to its customers or associated businesses that incorporates or utilizes the Product in any way, the Distributor will use commercially reasonable efforts to encourage recipients of such products or services to register with MISMO as a MISMO Product user.  

Lender Institutions MISMO does not require that any reference to MISMO or its license be made on any consumer facing form, website, or other presentation that utilizes the Taxpayer Consent Language.

We ask you to register with MISMO as a MISMO Product user.  Registering with MISMO helps us track the adoption of the products developed by MISMO on behalf of the mortgage industry.