IRS & Tax debt

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..

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..

Lenders know that the benefits of applying tech-driven solutions to the lending and underwriting process are manifold. However, as financial services become increasingly digital, online processes also tend to attract a multitude of tech-savvy bad actors who artificially inflate their incomes by creating fake tax returns, landing sizable loans they may not have the ability to pay back–or even worse, have no intention of paying back.
LexisNexis reports that small business lending fraud has increased 6.9% since 2020—and is only expected to increase over the coming year. Exclusive, up-to-date tax information allows lenders to verify data quickly, making it easy to confidently separate legitimate, qualified small businesses from potential fraudsters. The process is as easy as reconciling the reported income on the tax return given to you, the lender, with the income that’s been recorded on the borrower’s official tax return filed with the IRS.
Fake Tax Forms Are Easy to Find, Harder to ..

Watch the video to learn more about how Tax Guard can help you fund with confidence.
The underwriting process is kind of like assembling a 1,000-piece puzzle. Do you know which single piece of data acts as an essential corner piece, giving you immediate insight into a business’ overall financial health? Here’s a hint: what’s the first payment that a business experiencing the beginnings of financial distress will stop paying?
If you answered IRS payroll tax deposits, pat yourself on the back! And if you’re scratching your head wondering why missing a payroll tax deposit is such a big deal, you’ve come to the right place. Here’s the thing—the IRS is notoriously slow to pursue people who owe them money. When cash flow begins to slow to a trickle, businesses still have vendors, rent, and employees that need to be paid right away. Businesses figure that they can catch up on payroll tax deposits when conditions improve. But when the IRS gets the short end of the stick, penalties begin to ..

SBA lenders—if you’ve ever embarked on completing the IRS Form 4506-C with a borrower, you’ve probably found yourself wishing there was a faster way to receive tax return transcripts and tax compliance data. Perhaps you found yourself unsure if any tax-related financial verification procedures other than Form 4506-C were accepted by the SBA? Either way, don’t worry: we’re here with good news!
SBA Releases IRS Information Verification Guidelines for Form 8821 We’re excited to share that the SBA recently issued SBA Procedural Notice 5000-829416 (effective March 9, 2022) that provides clear guidance regarding the allowance of both the IRS Form 8821 and Form 4506-C to request tax return transcripts and tax data for your SBA’s 7(a) and 504 loan programs. In case you’re unfamiliar with IRS Form 8821, it isn’t a new IRS transcript request form —it’s a decades-old tax information authorization form that helps transform the process of acquiring information from the IRS. Form 8821 is your port..

Kickstarting the fight against the ever-growing tax gap will be a federal and national effort IRS Commissioner Charles Rettig recently testified before Congress about the state of the tax gap — the difference between total taxes owed and taxes paid on time — in America. He said that the official estimate is $400 billion, but he also noted it would not be out of order to suggest that the actual gap could “approach and possibly exceed one trillion dollars per year”.
To jumpstart the fight against the ever-increasing tax gap, President Biden unveiled the American Families Plan in April 2021. The White House expects the plan to boost funding to the Internal Revenue Service (IRS) by increasing taxes on wealthy Americans to raise nearly $700 billion over the next 10 years. Biden’s plan includes a general request that funds be allocated specifically to “improve taxpayer customer service.” The IRS has been underfunded for years, so a federal plan like this could mean an entirely new IRS expe..

As the world slowly starts to re-open after a global pandemic, small businesses are looking to secure loans so they too can continue to serve their customers. Maybe some business owners are just starting out, taking advantage of the new demands of a post-pandemic economy. Others may be existing businesses, opening their doors to the public for the first time in over a year. No matter who it is, one thing remains true: The entire credit process is at risk when unexpected or hidden tax debts are found.
Hidden debts affect the entire credit process — knowing what’s ahead will save underwriters from wasted time and headaches. Having real-time data and insight into a business’s payroll tax deposit compliance is key to recognizing financial distress in a business. Traditionally, when businesses are tight on cash, they’ll put their IRS payroll tax deposits last on the list of priorities. They assume there will be time to catch up on those bills later when their cash flow situation improves. ..