­

There's a new scam going around, or maybe it's the same old scam except it's making new rounds. Whatever it is, it involves the now-infamous IRS Form 4506. If you've gotten a mortgage, you've likely not only seen this form you may have even read the thing. You certainly signed it.

The 4506 is an IRS form that lets your lender (or your future lender should the loan get sold) compare the income information you put on your home loan application with what you reported to the IRS. With the advent of Turbo Tax and other tax software it's a lot easier to cheat on taxes than it used to be. Need to make more money on your tax returns to qualify for a home loan? Voila! Open up the old tax file, up the income a little and Hello, Mansion!

Of course, this really only works for the self-employed or those not paid with earnings reported on a W2 form. Paycheck stubs and last year's W2 can iron out most income questions. The Form 4506 gives the lender specific permission to pull old tax returns and compare what you filed with what you provided. But this permission can only last for a short period, up to 60 days from the date you signed the form. Some lenders ask that you not date the form, but just sign it. That gives them some extra time to dig up your old taxes in case they need them. Don't do it.

There are a couple of ways that you can protect yourself from possible abuse and unnecessary tax return reviews. First, always sign AND date the form and get a copy of what you signed. It's been an increasing request by some lenders and mortgage brokers to get permission from a borrower to sign something and leave off the date but there's also another question that might be asked such as "Did your lender ask you to sign any blank forms?" that could cause an audit problem.

The second thing you need to do is to limit the tax years the lender can review. The Form 4506, left untouched, lets the lender review up to four years of returns. But if your lender only asked for your previous two years, only give permission for those two years. If that's what the lender used to qualify you, there's no reason to go snooping around other tax years, is there? In section 7 of the 4506, you'll see four places for you to put dates. If your lender is asking for 2003 and 2004 tax returns, enter those dates then "line through" the other remaining fields, leaving them blank. Your lender didn't use the other years to qualify you.

Log in to comment
­