The IRS is tasked with a challenging and vitally important job – protecting American taxpayers’ most private data, their personal and business tax records. Appropriately, the IRS has high-security standards, one of which is creating a significant but understandable barrier when it comes to third parties obtaining tax records on a taxpayer’s behalf. Let’s dig into the current state of the IRS’ electronic signature (e-signature) options and what the future has in store for lenders.
In 2021 the IRS rolled out a new option that allowed for e-signatures on Forms 8821 and 2848, forms that enable tax information to be disclosed to a third party. While this may seem like cause for celebration, this new process comes with its own operational considerations that make it more cumbersome than lenders, and borrowers hoped it would be. Obtaining an e-signature in remote transactions when the borrower is not in person with the lender is made particularly complicated by IRS-mandated security measure..
IRS & Tax debt
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TAB Bank Needed An Assist
Since 1998, TAB Bank’s invoice factoring services have transformed how trucking businesses access working capital.
TAB Bank was utilizing an internal process for managing IRS 8821 forms, collecting IRS information on prospective clients, and ongoing credit monitoring. Managing all of these activities internally generated two key issues for TAB.
Tag-Teaming Form 8821
The first issue was the time delay when submitting 8821 forms for prospective clients. “Time is of the essence when you’re trying to fund someone with a cash flow problem,” said Curtis Sutherland, TAB Bank’s Vice President of Factoring. “We would manually submit the form and often wait up to a week for the IRS to accept our form and respond.”
TAB Bank first called on Tax Guard to help with its form management process. While TAB Bank usually had to wait a week to get a response from the IRS after submitting form 8821, with the help of Tax Guard, TAB Bank was quickly getting 24-hour turnarou.. -
Errors and delays threaten struggling small businesses BayFirst National Bank, headquartered in St. Petersburg, Florida, has had its sights set on becoming the premier bank of the Tampa Bay area since 1999. The bank has grown from an independent community bank to a top nationwide SBA lender with a team of more than 200 residential mortgage originators. Recently, many small businesses with thin credit profiles have needed funding as soon as possible to survive. BayFirst was looking to rise to the occasion and confidently offer rapid assistance to as many borrowers as possible.
To reach this goal, BayFirst had to find a better underwriting solution with faster turnaround times for tax transcripts from the IRS and access to more thorough information.
“Using our previous vendor meant waiting seven to ten days for a transcript,” said Kevin Nguyen, Loan Documentation Specialist at BayFirst Bank. “That turnaround time was unacceptable because it delayed the loan closing.”
To make matters.. - IRS & Tax debt
Cogency Global Acquires Tax Guard to Expand Footprint in Compliance and Financial Services
NEW YORK, September 14, 2023 (Newswire.com) – New York-based Cogency Global Inc., a global provider of corporate compliance and transactional legal support services, announced today that it has acquired Colorado-based Tax Guard, LLC., a leading tax risk due diligence and monitoring services provider, from Falfurrias Capital Partners. Terms of the transaction were not disclosed. Raymond James served as Tax Guard’s financial advisor.
This strategic combination aims to expand Cogency Global’s comprehensive suite of compliance services and solidify its presence in the financial services sector.
“We are thrilled to welcome Tax Guard into the Cogency Global family,” said Bruce Jacobi, CEO of Cogency Global. “Tax Guard’s expertise in tax risk assessment aligns perfectly with our commitment to providing reliable, seamless, and comprehensive compliance solutions. This acquisition allows us to offer even more specialized services to our diverse client base.”
Tax Guard is a recognized leader i.. -
Meeting the government’s high standards is no small task for SBA lenders Chicago-based Byline Bank is the nation’s second largest Small Business Association (SBA) lender, with close to $1 billion in assets. To realize this success, Byline Bank has had to navigate a substantial amount of risk. After all, SBA lenders primarily work with many startups and early stage small businesses, who often are newer borrowers.
SBA loans are backed by a government guarantee, which grants lenders a degree of security when doling out riskier small business loans. The tradeoff? Increased government scrutiny and additional paperwork. Given Byline Bank is also a preferred SBA lender and can issue guarantees on behalf of the SBA, they face even more granular inspections from the Small Business Administration.
“We have to comply with government requirements in order to protect the government-backed guarantee,” said Laima Lohman, Senior Vice President and SBC Closing Operations Manager at Byline Bank. “On .. -
Fraudsters Present A Big-Time Concern For Small Business Lenders Kapitus, a small business lender based in Arlington, Virginia, needed assistance in reliably identifying applicant tax debts. The need to collect tax transcripts to verify borrower information and prevent potential loan fraud was top of mind for this lender.
Countering attempted fraud isn’t just a concern for Kapitus—it’s a fundamental concern for all savvy lenders. “In our industry, we see a lot of fraud. It is fairly easy to doctor a tax return,” said Steven Podhorzer, Senior Vice President of Underwriting at Kapitus.
Fraudsters are becoming increasingly sophisticated, developing schemes that are difficult to catch with standard underwriting techniques that rely on conventional data sources, like basic tax returns. McKinsey has called synthetic identity theft (a common type of fraud where scammers piece together a fake identity and false documents using a real, stolen SSN and a fake name), “a ticking time bomb” for l.. -
The underwriting process can be filled with unexpected twists and turns impacting borrowers and lenders alike. One prominent example: copies of tax returns provided by clients are not always a reflection of what the IRS has on record. The savviest lenders avoid accepting falsified documents and fraudulent data by working with a trusted vendor to secure income and compliance information directly from the IRS system.
Verifying a borrower’s income with the help of IRS tax return transcripts sounds simple, but unfortunately, the reality is often far more complicated. There’s no shortage of ways the tax filing process can go wrong for businesses. It’s not uncommon for lenders looking to verify a borrower’s tax returns with the IRS to receive a “no record found” notice. This can hold up the loan process, making it particularly difficult for businesses applying for loans to access the working capital they need.
What does the “no record found” message really mean? Let’s take a look at the .. -
3rd party tax data: the cutting edge difference between lending success and failure
It’s a source of frustration for lenders and small businesses alike — a lack of credit data that turns lending decisions into little better than a throw of the dice. In fact, 50% of small businesses possess thin or no credit profile.
With today’s economic uncertainty, now more than ever, lenders seeking to protect their institutions from bad loans turn down small business credit applications at a higher rate than consumer applications. Meanwhile, small business owners must turn over every lending rock to secure the funding they need.
What’s the answer for small business lenders? Improved lending business intelligence.
Or, more simply put, better, reliable, more timely and more accurate business credit data, available through a robust suite of predictive third-party data.
Closing the gap between the current status quo of thin credit files and fatter credit files that offer smart business lending int.. -
Despite technological advances, the IRS is a slow-moving bureaucracy
While the IRS collects approximately $4.1 trillion a year (about 96% of the U.S. gross revenue), including almost every business and individual in the U.S., its ability to process this amount of data quickly and efficiently is massively impacted by consistent underfunding and understaffing issues. The agency is outfitted with antiquated technology, hardware, and code, dating back to the JFK administration.
While the IRS has been attempting to join the 21st century for years, the $80 billion recently allotted to the institution over the next decade should offer much-needed technological upgrades and improved hiring efforts, allowing for more auditors and customer service professionals. What’s the catch? Well, this overhaul will be a slow, sensitive process, given the difficulty of balancing any IRS processes and technology change with national security concerns.
One step forward, another step back: ID.me and NIST.. -
As a lender, do you know what really happens when you file a tax return transcript request with the IRS for one of your borrowers? It’s quite an adventure. The IRS isn’t exactly on the cutting edge of hi-tech—in fact, with their substantial need for red pens, which allow clerks to circle line items on paper returns to transcribe by hand, they’re practically operating in 1974.
Let’s take a walk through the various processes and compare how lenders and the IRS deal with the Form 4506-C vs. Form 8821 for tax return transcripts to see which one has the optimal results.
What is IRS Form 4506-C? In one way, IRS Form 4506-C, also known as the “IVES Request for Transcript of Tax Return,” does a lot for lenders by simply allowing them to verify a potential borrower’s income and prevent fraud. But sometimes, simple isn’t enough—and if you’ve had firsthand experience working with the Form 4506-C, you’re probably more than familiar with the shortcomings of the process. It’s frustrating to go th..