“Ah shoot. My wife gave you the wrong set of tax returns.” I almost dropped the phone. 

“Wrong set of tax returns.” The phrase hit me like a Mack Truck. Wow. I hadn’t even considered there could be multiple sets of tax returns. I looked down at my Chase tie as it hung from my neck like a noose. I looked up to see the bank lobby filled with busy patrons on a bleak Friday afternoon in 2007. Back then, people still went to the bank to cash their checks, use the safe deposit box, and talk to their banker. However, this particular client was one of my first potential fraud cases. I say potential because, as I’ve learned, there are really only 2 reasons why someone may have multiple sets of tax returns.

Perhaps they got them amended and handed their banker the old set. This was the scenario I was hoping for. 

The alternative is that they thought they could outsmart their banker and the bank itself by finding a CPA or Accountant or someone with access to Microsoft Paint or a PDF Editor who could modify certain numbers on a tax return. You see, the bank has a mechanism for catching this type of potential fraud. And, they never use the word fraud without the word potential first as they don’t want to be accusatory. But, this doesn’t stop the bank from declining a loan for any number of reasons.

“Hello? Matt, what’s the AGI on the taxes you’re looking at?” He wanted to see if the set I was supposed to be using was the one he thought I had in front of me. AGI stands for Adjusted Gross Income and it’s a standard “check number” for people trying to (amateurishly) adjust their taxes and fool a bank. It doesn’t work. The AGI doesn’t just change on it’s own. It’s the summation of lots of other lines and moving parts on a tax return.

I looked at the bottom of the first page. “108,000.” I bleakly stated. I could feel the sweat building on my brow. My mouth became dry. I was confirming tax return accuracy with a potential fraudster. Eagerly, I held my breath as though the general of an army was going to give me the access codes in return.

“Well, I think you’re looking at the set of taxes my wife dropped off before I had them amended. I’ll swing by tomorrow drop off the amended taxes. My CPA filed them before I provided him all of my 1099’s from my side job. I think you’ll see this amended tax return will be much different.” 

Click. Phew. Holy smokes. I could feel blood begin to rush back into my fingers. I was relieved. Seemed like an honest mistake from an honest client.

The 4506-T is a form that serves a very simple yet highly important function for lenders. It allows lenders (mostly banks, but sometimes the SBA will require it, too) to get a copy of your Tax Transcripts directly from the IRS to then verify if the tax returns you provided (and was used to determine your lending eligibility) matches what the IRS has on file. It’s a catch all for fraudsters. 

On the 4506-T, if your banker or lender hasn’t already informed you, the information on the 4506-T needs to match your tax returns EXACTLY as they were filed or it won’t work. The IRS, as many governmental agencies do, have strict guidelines for providing tax transcripts to banks and if any of the information is incorrect, they won’t provide the information needed to get your taxes confirmed. Most commonly incorrect is the absence of a spouse on the 4506-T and perhaps the second most common error is using the wrong address.

What are tax transcripts? Tax transcripts are a very mundane reporting of each line item on your tax returns presented in a list. You can get your own transcripts from the IRS Website too. You’ll have to create an account with the IRS first. 

Preparing clients for the litany of paperwork a bank requires to obtain loan is a major part of our process when working with clients who need loans. We’ve found that clients really appreciate the transparency of the process that banks so desperately try to overcomplicate.