The new Taxpayer First Act, which takes effect December 28, 2019, requires persons receiving tax return information to obtain the taxpayer’s express permission before disclosing their return information to any other person. We often receive tax information from the IRS, especially in our mortgage business. This could be a significant requirement if we must have signed permission before sharing customer tax information with participating banks, auditors, contract underwriters, Fannie Mae and Freddie Mac, etc. Does this requirement apply to both consumers and businesses, and will there be a required uniform disclosure?

We believe that both consumers and businesses would be covered taxpayers under the Taxpayer First Act (Act).

The Taxpayer First Act amended the Internal Revenue Code to require that “[p]ersons 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.”

In other words, you must obtain the taxpayer’s consent before providing their tax return information to another party, such as a loan participant, auditor, contract underwriter or purchaser (such as Fannie Mae or Freddie Mac). As defined in the Internal Revenue Code, “taxpayer” refers to “any person subject to any internal revenue tax” and “person” refers to “an individual, a trust, estate, partnership, association, company or corporation.” Consequently, we believe that this provision of the Act would apply to both consumers and businesses that have authorized your bank to receive their tax return information.

We believe you can fulfill the Act’s requirement for obtaining express permission by including either a clause in your loan documents or a separate form granting your bank authorization to share their tax information with appropriate third parties. Moreover, while the IRS has not provided a required uniform disclosure form, we are aware of one model form that could be used as a template for a separate authorization form — which the Mortgage Industry Standards Maintenance Organization (MISMO) has made available to the public (with a free registration required).

For resources related to our guidance, please see:

Internal Revenue Code, 26 USC 6103(c) (“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. [Additional text added by the Taxpayer First Act, effective December 28, 2019: 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.]”)

Fannie Mae, Taxpayer First Act and Use of Tax Return Information (November 6, 2019) (“The Taxpayer First Act, signed into law on July 1, 2019, includes a provision that persons receiving tax return information must obtain the express permission of taxpayers prior to disclosing it to any other person. This component of the law goes into effect on December 28, 2019. ‘Tax return information’ is defined under the IRS Code, 26 U.S.C. § 6103. Therefore, if a lender or servicer obtains tax return information during the origination or servicing of a mortgage loan, the lender or servicer must obtain express consent from the taxpayer to be able to share the tax information with another party. Such sharing would extend to actual or potential owners of the loan, such as Fannie Mae or any other loan participant. This component of the law goes into effect December 28, 2019.”)

Internal Revenue Code, 26 USC 7701(a) (“(1) Person. The term ‘person’ shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation. . . . (14) Taxpayer. The term ‘taxpayer’ means any person subject to any internal revenue tax.”)

Fannie Mae, Taxpayer First Act and Use of Tax Return Information (November 6, 2019) (“The IRS has indicated that it has no plans at this time to provide a standard form related to disclosing or sharing tax return information with other parties. However, the Mortgage Industry Standards Maintenance Organization (MISMO) drafted a sample Taxpayer Consent Form designed to allow sellers/servicers to share tax return information with other loan participants. . . . Sellers/servicers may also prepare their own taxpayer consent form, as long as the form provides the seller/servicer with express permission to share tax return information in accordance with the law.”)

MISMO’S Taxpayer Consent Language (Free registration required) (“I understand, acknowledge, and agree that the Lender and Other Loan Participants can obtain, use and share tax return information for purposes of (i) providing an offer; (ii) originating, maintaining, managing, monitoring, servicing, selling, insuring, and securitizing a loan; (iii) marketing; or (iv) as otherwise permitted by applicable laws, including state and federal privacy and data security laws. The Lender includes the Lender’s affiliates, agents, service providers and any of aforementioned parties’ successors and assigns. The Other Loan Participants includes any actual or potential owners of a loan resulting from your loan application, or acquirers of any beneficial or other interest in the loan, any mortgage insurer, guarantor, any servicers or service providers for these parties and any of aforementioned parties’ successors and assigns.”)

Fannie Mae, Taxpayer First Act and Use of Tax Return Information (November 6, 2019) (“Because the law becomes effective on December 28, 2019, sellers should obtain signed taxpayer consent forms from borrowers in connection with all loans that are sold to or securitized by Fannie Mae on or after that date. Servicers must also obtain consent on or after December 28, 2019 when tax return information is obtained as part of the servicing function (for example, when processing a loan modification). As with all other origination and servicing records, a copy of the signed consent must be maintained in the loan file.”)