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Mortgage Matters: IRS Data Breach

If you’ve heard about the IRS data breach on the news recently, this is a few things you might want to know, how that pertains to applying for a mortgage. On every mortgage we validate income. We do that by filling a form out called a 4506, and we take that form and we send that form to the IRS. The IRS then sends us back the transcripts of what you filed for on your tax returns, and that’s how we validate the income that you used to apply for the loan.

If you’ve been part of the data breach, which I think it’s in the millions of people that are affected by that, the IRS is not going to allow any third party to verify that income through the 4506. What that means in the mortgage process is that you are going to have to go down to the local IRS office, or you’re going to have to probably spend an hour or two on the telephone requesting what we call the transcripts for your tax returns back from the IRS. So that’s the easy thing that happens.

If you’re actually one of the people that have been a victim of fraud, where someone has filed a fraudulent tax return, you’re going to have to file a form 14039, Identity Theft Victim Affidavit with the IRS. Then it gets much more complicated, because now when we validate your income, the transcripts are going to come back with the fraudulent information. What I recommend you do in that case is get what’s called the Taxpayer Advocate. So when you call into the IRS, if you’re a victim of fraud, you want to get that Taxpayer Advocate assigned to your case as quickly as possible. They’re going to work through sorting out what the fraudulent information was versus what your information is. Having that Taxpayer Advocate gives us a third party, not you, over at the IRS to where we can actually call them and verify that you have filed a legitimate tax return behind the fraudulent tax return, and that’s really going to help you in the mortgage process.

This file here was an actual victim of identity theft with the IRS. They’ve got about an inch of extra paperwork that they had to do for us to reconcile that information on that fraudulent return. I advise you that if you are part of that data breach and you’re an identity theft victim, I recommend that you contact us immediately to start working on some this stuff before you actually get under contract.