Taxpayer Consent Language
Frequently Asked Questions
MISMO has attempted to provide a list of frequently asked questions to assist organizations as they work to implement the MISMO Taxpayer Consent Language. We strongly encourage organizations to discuss the provisions of the Taxpayer First Act with their counsel and/or compliance departments to determine how best to comply. We also encourage organizations to communicate with other parties involved in the mortgage transaction to ensure that they meet requirements that may be set by these other organizations. MISMO makes no representations or warranties with respect to the accuracy and completeness of the Taxpayer Consent Language, Frequently Asked Questions, or any other supporting documentation that might be issued on this topic. If legal advice or other expert assistance is needed, competent professionals should be consulted.
Why do I need the MISMO Taxpayer Consent Language? A new law requires that entities ordering transcripts provide "express purpose" for which tax return information will be used. In addition, the law requires that borrowers provide "express permission" to allow the sharing of return information with other stakeholders. The MISMO Taxpayer Consent Language was developed to assist organizations that need to comply with this law.
What law or regulation governs these requirements? The Taxpayer First Act was signed into law on July 1, 2019. The law addresses several different topics relating to the IRS. Section 2202 of the Act governs the specific requirements regarding express purpose and express permission.
What does express purpose mean? Section 2202 of the Act is specifically "intended to limit redisclosures and uses of consent-based disclosures of tax return information." Therefore, entities intending to order transcripts must provide to, and receive consent from, borrowers for the specific purposes for which their return information will be used. This includes parties performing various functions such as providing insurance as well as servicers and investors.
What does express permission mean? Express permission means that the taxpayer must provide consent prior to sharing their tax information with other parties.
When are these requirements effective? The law states that these provisions must be implemented 180 days after passage of the law. The law was signed on July 1, 2019. We have therefore calculated that these provisions should be implemented no later than December 28th, 2019. Please note that other parties that may be involved in the mortgage transaction may have requirements that differ from this date. For example, Fannie Mae issued a notice that loans delivered to them starting December 28th, 2019 need to comply with the law. This could require lenders to implement sooner to ensure that loans in their pipeline can be delivered.
Must I use the MISMO Taxpayer Consent Language? No. MISMO is not a regulatory entity and has no enforcement powers. MISMO has developed the language to help organizations comply with the law.
If I use the MISMO Taxpayer Consent Language, must I use it verbatim? No. The language may be used as-is or may be modified to meet an organization's compliance interpretation.
At what point in the process should taxpayer consent be obtained (at origination, at closing, etc.)? Consent for the express purpose on how the tax information will be used needs to be obtained before ordering the tax transcript. Consent to share the data be must obtained prior to sharing with other parties. It is anticipated that both consents will be captured simultaneously prior to the initial ordering of the tax transcript. The MISMO Taxpayer consent language includes language for both consents.
Form 4506-T is typically signed by borrowers at origination and again at closing. Does consent need to be obtained each time Form 4506-T is signed, or if consent is obtained once does it extend across the remainder of the lending life-cycle? The language is drafted in a manner that consent can be obtained once and span the entire loan life-cycle. It is recommended that lenders consult with investors and other lending partners to understand compliance and loan salability requirements.
For returns that are filed jointly, is consent required from each taxpayer to release the transcript information? Current industry practice allows consent to be obtained by only a single borrower when the tax information is a joint return. The Taxpayer First Act did not include any language changing this practice.
Should specific functions, such as "processing", "underwriting", or "performing quality control" be included as "express purpose" terms? There are multitudes of process-specific terms related to the residential finance life-cycle. Such terms may include processing, underwriting, and quality control purposes. MISMO decided upon more generic terms such as maintaining, managing, and monitoring, which are believed to encompass the prior mentioned processes.
Will the IRS modify Form 4506-T or adopt a new form (4506-C) with language complying with Section 2202? The IRS has indicated that they are not going to provide updated language to the 4506-T relating to obtaining taxpayer consent, and they are leaving it to the industry to ensure proper taxpayer consent is obtained.
What assurances do lenders have that language will be acceptable to support the need to request tax transcripts post-closing for Quality Control and investor purchase related audit requirements? MISMO's Taxpayer Consent Language was created to provide a consistent way for the mortgage industry to comply with the new requirements. This model language is presumed acceptable to key transaction stakeholders to assist the industry with adoption in a timely manner. However, lenders should consult with their investors and secondary market partners to ensure acceptance.
What will happen to loans that closed prior to December 28th, but are delivered to investors after that date? According to a posting on the IRS website, the law "limits the redisclosure and use of return information in the case of taxpayers who have consented to the disclosure of their return information by the Internal Revenue Service to a third party under IRC section 6103(c). Section 2202 of the Taxpayer First Act applies only to disclosures made by the Internal Revenue Service after December 28, 2019, and any subsequent redisclosures and uses of such information disclosed by the Internal Revenue Service after December 28, 2019. Lenders should consult with their investors and secondary market partners to ensure they understand their requirements.
Can lenders or other loan participants change the model language? Yes. Lenders are encouraged to work with their compliance departments, investors, and other lending partners to ensure that the language in the consent meets each company's needs. Organizations should feel free to revise the language as they deem appropriate.
What is the IRS's enforcement strategy? The IRS has not provided direction to the industry as to how they or other government entities will enforce compliance with the new law. Should such information become available, MISMO will update documents such as these frequently asked questions.
Will the IRS issue additional guidance? At the time this FAQ was created, there was no indication that the IRS was going to offer any additional guidance. MISMO will continue monitoring usage and enforcement of the Act after December 29th to ensure our industry remains compliant.
Who came up with this language? MISMO created a working group to create the language for the industry. The MISMO Taxpayer Consent Development Workgroup participants were from all segments of the mortgage industry, including but not limited to Lenders, Investors, Document Providers, LOS providers, Servicers, IVES participants and both GSE's
Will my investors accept this language? Most major investors including the GSE's were involved in creating the language. The Taxpayer Consent Language is the consensus product of this effort. We believe that most organizations will utilize the MISMO language. However, we encourage organizations to communicate with their investors to ensure that use of the MISMO language is acceptable.
Do I need a license to use the MISMO Taxpayer Consent Language? Yes. A license is required for all MISMO products. For the Taxpayer Consent Language, MISMO grants all organizations a license to use the Language. MISMO requests that organizations utilizing the Taxpayer Consent Language register with MISMO as a MISMO Product user. This can be accomplished by clicking here.
Is there a fee to use the MISMO Taxpayer Consent Language? No. A fee is not required to use the MISMO Taxpayer Consent Language.