For banks, credit unions and other small business lenders, this is an IRS-related story with a happy ending.
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In a March 6 policy update, the IRS said, “We are aware of the concerns raised and are committed to the ability to provide tax return information as needed while keeping taxpayer information confidential and protected from disclosure.'' We are evaluating it.” “The IRS announced a policy change on January 2, 2024, but has suspended the change as it seeks input from customers and other stakeholders regarding the potential and impact of the change to the program. I am.”
Scott Stewart, CEO of the Association for Innovative Lending Platforms, acknowledged that the IRS could return to its original policy stance after a review. At the same time, Stewart said even a temporary break represents a major accomplishment.
“Federal agencies don't do this,” Stewart said in an interview. “To get any kind of federal agency, let alone the IRS, [to acknowledge a misstep] It's really very rare. I don't know if I've ever seen a reversal like this before. The IRS deserves credit for recognizing that this policy needs further review. ”
The Innovative Lending Platform Association is among 11 financial services industry trade groups, including the Independent Community Bankers of America, American Bankers Association, America's Credit Unions, and Mortgage Bankers Association, that supported a Jan. 24 comment letter opposing the IVES policy change. It is one of the IVES is a platform where taxpayers give permission to third parties, such as lenders, to view their tax returns and wage information.
Under the IRS's original concept, tax data was only supposed to be provided to mortgage lenders. In all other cases, government agencies would have provided the data directly to individual taxpayers.
Lenders value the ability to obtain tax returns from the IRS as an important tool in underwriting and fraud prevention. They were concerned that policy changes would increase application complexity, time, and cost, while making it easier for malicious parties to exploit the system.
“You'll see how fraudsters digitally alter tax returns and send them to lenders,” Stewart said. “I hope they move on in the next direction.” [opening] system of [application programming interface] This will increase access for everyone and reduce the overall cost of credit and capital for everyone, including small businesses, consumers, and people looking for insurance. ”
An application programming interface (API) is software code that allows websites, applications, or programs to more easily share information with other websites, applications, or programs.
Ryan Metcalfe, director of communications for Funding Circle US, said in an interview that IRS officials “said they were suspending the decision indefinitely” in an announcement last week. “I'm not worried about it happening again. It looks like the IRS has backed off. … This is a huge win for American consumers and small businesses.”
However, it's far from game over.
“That's good news. [the IRS] We’re back to the status quo,” Metcalf said. “There are still issues to resolve. We still need to consider how to resolve the authentication issue, but is it possible to use a private API?” Access to logins, being able to expand the data within the transcripts, are all things we are still looking for. ”
Beyond access to tax data, lenders and borrowers want the IRS to make IVES easier to use. Currently, borrowers must create an IRS account and verify their identity with the IRS agency before requesting that their lender send them a certificate of record. Mr Metcalf said this route was time-consuming and redundant, as lenders themselves had to perform identity checks based on customer awareness requirements.
” [optimal] The bottom line is that you want to be able to submit to your borrowers. [transcript request] “We give it to the lender, and they pass it on to the IRS, and we can receive the tax return in real time. Or, if the lender already has an account with the IRS, we can send it to the IRS,” Metcalf said. All you have to do is log in.” In our application. That's API access. …That's what we want. We need one option or the other. ”
A bipartisan bill introduced in the House of Representatives in May 2023 would address the authentication issue by allowing taxpayers to designate financial institutions or other service providers to receive their tax data. The bill was introduced by House Financial Services Committee Chairman Patrick McHenry, Republican of North Carolina. California Democratic Rep. Jimmy Panetta. Colorado Democratic Rep. Brittany Pettersson is currently before the Ways and Means Committee.
Funding Circle supports the bill as it is currently written and would like to strengthen its language following the IRS action. “We are preparing to update the bill to address additional issues. … We will probably add to the bill to prevent the IRS from revisiting this policy decision,” Metcalfe said. .
The IRS did not respond to a request for comment by deadline.
Mr. Stewart attributed the IRS's original policy of restricting access to IVES to a desire to protect taxpayer information. “Their obligations are paramount,” Stewart said, but was quick to add that allowing an API interface with IVES can be accomplished without compromising data integrity. “We believe the creation of this API does not put taxpayers at risk as long as they allow taxpayers to make requests directly through their lenders, insurance companies, and banks.”