The Taxpayer First Act (the “Act”), Public Law 116–25, was signed into law on July 1, 2019, but over the last few months it has not garnered as much attention in the mortgage industry as it should.  Section 2202 of the Act includes a provision that adds to 26 U.S.C. § 6103(c), which authorizes the IRS to disclose tax return information at the request of the consumer, a prohibition against the persons that receive such tax return information from the IRS at the request of a consumer from disclosing the tax return information to any other person without the express permission of, or request by, the consumer.  This provision goes into effect soon, applying to disclosures after December 28, 2019. 

Based on this provision, it appears that if a mortgage lender or mortgage servicer obtains “return information” about a consumer from the IRS, it can only share that information with another person, including a potential purchaser of the loan, if it has the “express permission” or “request” by the consumer.  “Return information” is defined to include, “a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities…or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax….”  26 U.S.C. § 6103(b)(2).  This definition may include tax returns and other tax information. 

The IRS has posted on its website a brief statement about this provision of the Act, which appears to interpret this provision to apply only to tax return information obtained form the IRS after the effective date of the provision.  The IRS states that, “[s]ection 2202 of the Taxpayer First Act applies only to disclosures made by the Internal Revenue Service after December 28, 2019, and any subsequent redisclosures and uses of such information disclosed by the Internal Revenue Service after December 28, 2019.”  This statement can be found here: https://www.irs.gov/newsroom/taxpayer-first-act-cybersecurity-and-identity-protections. 

Note that Fannie Mae issued a notice on November 6, 2019 (available here: https://www.fanniemae.com/content/notification/notification-servicing-notice-11062019) regarding this provision of the Taxpayer First Act.  The notice states that sellers and servicers must obtain consent forms in compliance with the Act, under sellers and servicers’ existing requirement to comply with all applicable laws under the A3-2-01 of the Fannie Mae Selling Guide.  Fannie Mae’s notice also mentions that the Mortgage Industry Standards Maintenance Organization (MISMO) drafted a sample Taxpayer Consent Form.  You can find information about MISMO’s consent form here: http://www.mismo.org/standards-and-resources/additional-tools-and-resources/taxpayer-consent-language.  Other mortgage origination and document software providers may have drafted consent forms for their customers as well.

Note that the GSEs’ revised URLA does contain information in Section 6 that provides the consumer’s consent to use and share tax return information, but as the provision goes into effect soon, well before the revised URLA will be in use, lenders will need to use a separate consent form to comply with the Act.  In addition, even after the revised URLA is in use, if lenders need to share tax return information before obtaining the consumer’s signature on the revised URLA, they may need to use a separate document to obtain consent.  Further, mortgage servicers are subject to this requirement as well, and will be dealing with loans that were not closed using the revised URLA. 

Please contact Richard Horn if you would like to discuss this important new requirement.