Taxpayer First Act and Taxpayer Consent

Issue/Inquiry

An applicant refuses to sign the taxpayer consent authorized by the Taxpayer First Act. Is such a consent required? Are there exceptions to the requirement?

Response Summary

The Taxpayer First Act requires the written consent of the taxpayer before the IRS can share the taxpayer’s income tax return with a third party such as a bank. Such consent is not required to make the loan but is required for the IRS to provide the information. The Bank cannot share the information with any other party unless it is permitted by the consent.

Response Detail

The Taxpayer First Act of 2019 (the “Act”) was signed into law on July 1, 2019. Generally, the Act revises provisions relating to the Internal Revenue Service (“IRS”), its customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems.

The Act also includes a provision that persons receiving tax return information must obtain the express permission of taxpayers prior to disclosing it to any other person:

• Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer. Act Sec. 2202.

This aspect of the Act went into effect on December 28, 2019, and modifies Section 6103(c) of the Internal Revenue Code:

• (c) Disclosure of returns and return information to designee of taxpayer. The Secretary may, subject to such requirements and conditions as he may prescribe by regulations, disclose the return of any taxpayer, or return information with respect to such taxpayer, to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with a request for information or assistance made by the taxpayer to such other person. However, return information shall not be disclosed to such person or persons if the Secretary determines that such disclosure would seriously impair Federal tax administration. Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.

Banks or servicers obtaining tax return information after taxpayer consent during the origination or servicing of a loan of whatever nature must obtain the consent of the taxpayer to be able to share this information with another party. Such permitted sharing should extend to actual or potential owners of the loan, such as Freddie Mac or any other loan participant.

RSK is not aware of any exceptions to the consent requirement. It covers all taxpayers. The purpose of the request or the loan is not relevant to whether the consent must be obtained.

This means that the Bank can make the loan without obtaining the applicant’s written consent for the IRS to share tax information, but also that if it anticipates contacting the IRS to obtain copies of tax returns or tax information concerning an applicant, it must obtain the consent of the applicant to do so. If it anticipates sharing such information or transferring the loan to another party along with the relevant underwriting information, the consent should permit such a sharing or transfer.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, October 19th, 2020 at 9:17 am.