topic Re: tax troubles-please advise in Mortgage Loans

tax troubles-please advise

Anonymous — Wed, 04 May 2016 03:16:53 GMT

I plan to apply for a mortgage in the next two months. My income (long term W-2 job), credit, DTi, down payment and reserves are all in line. I have a problem with my taxes that I hope will not be a problem and I am looking for some advice. I am married, but my husband will not be on the mortgage because his credit is poor. We live in a non community property state. In 2014, my husband worked the first few months of his job as a 1099 employee, and then was switched to w-2. When I filed these taxes, I forgot about the 1099. It came after I filed, and I had planned to amend my taxes soon, just with crazy life, I hadn't gotten to it yet. I actually filled out the amended form on turbo tax and hadnt yet sent it in.

Then, a week ago, I received in the mail from the IRS a cp2000, notice of underreported income. I called and spoke to the IRS rep and he said that since they have the copy of the 1099, I do not need to amend my taxes, and just need to send in the Schedule C that goes along with this income. I filled this out and sent it in to the IRS and it is currently pending.

My question is, how will this affect me when seeking a mortgage? I guesss, my tax transcript, will not match my taxes that I filed? I'm pretty stressed out and have worked really hard to get my credit in line to get a mortgage this summer. Any advice?

Re: tax troubles-please advise

Anonymous — Wed, 04 May 2016 05:50:43 GMT

I am in almost the exact same situation, so I'd be curious to see if anyone has any insight - lenders or applicants.

My situation: Had 1099 income from tax year 2014 that I had mistakenly left off my return. First time I had a 1099 and was an honest mistake not including it on my return. Received a CP2000 this year and realized my bonehead error. Paid the proposed amount in full on the CP2000 form from the irs immediately.

Was also told, like the OP above that I shouldn't file an amended return and that they will "make the corrections." So I'm at the same super stressed and worried stage that my tax return I filed won't match the IRS 1040 transcripts for 2014 and will be immediately denied in underwriting even though the adjustment shows increased income with no deductions (note: I won't be using it as effective income) and the amount the IRS said I owed is paid in full. Desperate for any info anyone might have!

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 11:23:12 GMT

anyone?

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 12:47:48 GMT

Hey Jmitch, so I ended up calling the IRS last night and the rep I spoke with said to fill out an amended tax return (form 1040x) to show to the LO/underwriter. I'm not entirely sure he understood my question in how it related to applying for an FHA loan but just thinking about it logically it makes sense - an amended return takes the place of the original 1040 obviously, so as long as you show a copy of the 1040x, it should match the tax account transcript the bank will pull.

The tax RETURN transcript - which is different than the tax ACCOUNT transcript - will show record of the original 1040 so I, personally, will be including both the original 1040 and 1040x as well as a copy of the cashed check used to make payment of the amount shown on the CP2000. Do any of the LO's here know if the bank pulls the RETURN transcript or the ACCOUNT transcript? Or both I would assume?

I am the farthest thing from a real estate or tax professional and I'm just working with what I think the IRS rep was trying to say and my own assumptions so take all of this with a grain of salt. May try calling the IRS again tonight if I have time to get further clarification. If I find out anything different, I'll post here and let you know. If you hear of any other recommendations or people who may have run in to this situation in the past, keep us updated!

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 13:00:11 GMT

Thanks so much for your reply. Makes sense. So, just to clarify, I shoulda fill out the amended return, but not file it ? Just print it out so it matches what the irs pulls?

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 13:29:34 GMT

From my understanding of what the IRS rep said to me, that is correct. Technically, there really is no reason to physically file the amended return since the IRS makes the adjustments/corrections to the tax account transcript so they have record of all the changes and the CP2000 and the IRS website explicitly says you (we) do not need to file an amended return. Filling out 1040x would be strictly for the purpose of showing the bank so that it matches what the info they receive on your tax account transcript.

So I ***THINK*** the same would apply to your situation. It might be worth your time in calling the IRS yourself as well. Either way, definitely check with your loan officer when you go in for a pre-approval to be absolutely sure - especially since your situation is slightly different than mine in that it involves a Schedule C as well.

Re: tax troubles-please advise

ezdriver — Thu, 05 May 2016 13:31:50 GMT

My personal opinion is that an amended tax return should be filed and processed by the IRS. Without the amended return, the mortgage lender will be unable to underwrite your loan using an incorrect W2 ... once the lender knows that a correction is warranted. Eventually, the transcript pulled by the lender will not math the incorrect tax return copy that you would have submitted to the lender. I have had to file amended returns for multiple years to satisfy an underwriter even though the IRS had automatically adjusted my credit/liability having received the income docs independently. Get the tax returns in order before applying for a mortgage. To do otherwise is simply courting personal frustration.

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 13:46:17 GMT

@ezdriver wrote:
My personal opinion is that an amended tax return should be filed and processed by the IRS. Without the amended return, the mortgage lender will be unable to underwrite your loan using an incorrect W2 ... once the lender knows that a correction is warranted. Eventually, the transcript pulled by the lender will not math the incorrect tax return copy that you would have submitted to the lender. I have had to file amended returns for multiple years to satisfy an underwriter even though the IRS had automatically adjusted my credit/liability having received the income docs independently. Get the tax returns in order before applying for a mortgage. To do otherwise is simply courting personal frustration.

If I were to physically file the 1040x, do you remember how long it took for the IRS to fully process your amended returns? I've heard anywhere between 3-6 months - does that sound right? Was the actual filing of 1040x a condition set by the underwriter in your situation? Did you include a copy of the CP2000 with your application even after filing the amended return?

In my situation, I had regular W2 income which was all reported correctly, so the lender wouldn't be seeing an incorrect W2. The problem in my case is a missing 1099 on the original return. So the lender would definitely see the incorrect return on the transcript but a copy of the 1040x would - as per the IRS rep I spoke to - provide sufficient proof to the lender assuming it matches the changes the IRS themselves made to the tax account transcript. I guess that's just playing devil's advocate int his case as I'd be more inclined to believe what you're saying, having gone through the actual process.

Re: tax troubles-please advise

Anonymous — Thu, 05 May 2016 13:52:44 GMT

In my case, there is no incorrect w2. It is a missed 1099, for my husband who will not be on the loan.

Re: tax troubles-please advise

ezdriver — Thu, 05 May 2016 20:32:58 GMT

@Anonymous wrote:
@ezdriver wrote:
My personal opinion is that an amended tax return should be filed and processed by the IRS. Without the amended return, the mortgage lender will be unable to underwrite your loan using an incorrect W2 ... once the lender knows that a correction is warranted. Eventually, the transcript pulled by the lender will not math the incorrect tax return copy that you would have submitted to the lender. I have had to file amended returns for multiple years to satisfy an underwriter even though the IRS had automatically adjusted my credit/liability having received the income docs independently. Get the tax returns in order before applying for a mortgage. To do otherwise is simply courting personal frustration.
If I were to physically file the 1040x, do you remember how long it took for the IRS to fully process your amended returns? I've heard anywhere between 3-6 months - does that sound right? Was the actual filing of 1040x a condition set by the underwriter in your situation? Did you include a copy of the CP2000 with your application even after filing the amended return?

In my situation, I had regular W2 income which was all reported correctly, so the lender wouldn't be seeing an incorrect W2. The problem in my case is a missing 1099 on the original return. So the lender would definitely see the incorrect return on the transcript but a copy of the 1040x would - as per the IRS rep I spoke to - provide sufficient proof to the lender assuming it matches the changes the IRS themselves made to the tax account transcript. I guess that's just playing devil's advocate int his case as I'd be more inclined to believe what you're saying, having gone through the actual process.

I went to my local IRS office and they took the amended forms, entered it in the system, took my check for the small amount that I owed and printed/stamped the transcripts right there and then. Total time invested was about two hours.

Don't listen to IRS people giving you advice on what mortgage lenders will accept. You are being told the truth here, by people who deal with this stuff every day. As far as the IRS is concerned, you do not need to file an amended return ... but your mortgage lender requires it.

Re: tax troubles-please advise

Anonymous — Fri, 06 May 2016 13:31:27 GMT

Ok...I'm super stressed so I'm just trying to figure out what to do. I already sent in the cp2000 and the copy of schedule c. I'm waiting on a reply back. I read elsewhere that doing an amended tax form while that is still in progress can mess things up because it goes to a different office. When I file the amended tax form, do I need to enclose the actual 1099, since they already have a copy? Also I guess in theory, if the irs corrects the tax transcript accordingly, why would I have to actually file the 1040x? If I filled it out, wouldn't it match what they had corrected it to?

Re: tax troubles-please advise

Anonymous — Fri, 06 May 2016 14:04:36 GMT

@ezdriver wrote:
@Anonymous wrote:
@ezdriver wrote:
My personal opinion is that an amended tax return should be filed and processed by the IRS. Without the amended return, the mortgage lender will be unable to underwrite your loan using an incorrect W2 ... once the lender knows that a correction is warranted. Eventually, the transcript pulled by the lender will not math the incorrect tax return copy that you would have submitted to the lender. I have had to file amended returns for multiple years to satisfy an underwriter even though the IRS had automatically adjusted my credit/liability having received the income docs independently. Get the tax returns in order before applying for a mortgage. To do otherwise is simply courting personal frustration.
If I were to physically file the 1040x, do you remember how long it took for the IRS to fully process your amended returns? I've heard anywhere between 3-6 months - does that sound right? Was the actual filing of 1040x a condition set by the underwriter in your situation? Did you include a copy of the CP2000 with your application even after filing the amended return?

In my situation, I had regular W2 income which was all reported correctly, so the lender wouldn't be seeing an incorrect W2. The problem in my case is a missing 1099 on the original return. So the lender would definitely see the incorrect return on the transcript but a copy of the 1040x would - as per the IRS rep I spoke to - provide sufficient proof to the lender assuming it matches the changes the IRS themselves made to the tax account transcript. I guess that's just playing devil's advocate int his case as I'd be more inclined to believe what you're saying, having gone through the actual process.
I went to my local IRS office and they took the amended forms, entered it in the system, took my check for the small amount that I owed and printed/stamped the transcripts right there and then. Total time invested was about two hours.

Don't listen to IRS people giving you advice on what mortgage lenders will accept. You are being told the truth here, by people who deal with this stuff every day. As far as the IRS is concerned, you do not need to file an amended return ... but your mortgage lender requires it.

Haha, calm down bud. I made it clear that I'm more inclined to believe you (and others here) over the IRS rep for that exact reason. I never said you, or anyone else, wasn't telling the truth or giving truthful accounts of your experiences. But I also asked if your situation had to do with receiving a CP2000 form from the IRS and it appears it didn't. Independent confirmation isn't such a bad thing with information found on the internet without specific references either.

JMitch, for additional reference, I contacted a CPA, spoke to another IRS rep and tried to get further clarification from my LO yesterday and nobody seems to know exactly what will happen or what I (we) need to do when it has to do with a CP2000 - specifically - and applying for an FHA loan. The general consensus is that when the lender pulls the tax transcript, they will see the wages/1099, account and return transcripts. They will also see that payment for the proposed tax defecit by the IRS was accepted and also have record of the 1099, CP2000 and the adjustments as well as the incorrectly filed return.

As per the CPA and IRS, if it were a matter of an amended return that had no relation to the CP2000 then ezdriver is absolutely correct in saying that an amended return would need to be both filed AND processed by the IRS. But nobody can give me a definite answer in how the CP2000 would relate to underwriting an FHA loan. So we're basically back to where we started. All three (CPA, IRS and LO) agreed that it would be best to include the original tax return as originally filed, the CP2000, proof of the cashed check along with a LoE . Both the IRS and LO agreed that those documents should be sufficient. CPA was unsure and wasn't comfortable giving an opinion either way but said it would increase my chances.

That's the info I have at this point and I, personally, feel comfortable with the advice received from the IRS and LO as it relates to the CP2000 and applying for the FHA loan. If you're still trying to figure out what to do, I'd again suggest that you confirm the same information as it relates to your situation and call the IRS, your LO and a tax professional. These forums are amazingly helpful for the vast majority of credit-related issues but if you can't get a definite answer as it specifically relates to your individual situation with proof here, it's best to independently confirm, in my opinion. Best of luck to you!

Re: tax troubles-please advise

Anonymous — Fri, 06 May 2016 15:00:42 GMT

I really appreciate your replies as I'm probably really close to losing my mind. Do you have the phone number for irs that you used? The numbers I've tried won't even let me hold, they just say to try back tomorrow and hand up. I am planning to apply for mortgage in about 1-2 months and I don't yet have a loan officer. I am so scared. I have gotten everything else in line...this mortgage is going to fully be based off of my income, I really hope a left off 1099 from my husband two years ago doesn't mess it up. We need to buy a home. 😢

Re: tax troubles-please advise

Anonymous — Fri, 06 May 2016 15:27:55 GMT

@Anonymous wrote:
I really appreciate your replies as I'm probably really close to losing my mind. Do you have the phone number for irs that you used? The numbers I've tried won't even let me hold, they just say to try back tomorrow and hand up. I am planning to apply for mortgage in about 1-2 months and I don't yet have a loan officer. I am so scared. I have gotten everything else in line...this mortgage is going to fully be based off of my income, I really hope a left off 1099 from my husband two years ago doesn't mess it up. We need to buy a home. 😢

Believe me, I understand completely. The number you should call should be at the top of the CP2000 but I'll PM the number I used in a sec.

Re: tax troubles-please advise

Anonymous — Sun, 08 May 2016 08:20:25 GMT

I spoke to a loan officer today and explained my situation. He said that because the mortgage will be based off only my income, that they could pull a w2 transcript rather than an account transcript and it should be ok. The person I spoke to seemed to know what he was talking about and has great reviews. Any input?

Re: tax troubles-please advise

indiasnowden — Mon, 09 May 2016 05:06:06 GMT

I had something similar happen to me when I applied for my mortgage with WF five years ago. My loan officer handled everything. I just did what he told me. I think he called it some kind of fast response something or other. I had to sign an IRS form giving WF the right to poke around in my tax affairs. I remember they pulled every week until they saw my account adjusted exactly one week before closing. They also charged me for every pull. WF LO was very good about keeping me informed on the status of my IRS drama.

I was a nervous wreck. Your LO should be able to guide you through this and handle most of it for you. I had a few errands he sent me on but otherwise WF handled everything. I remember my LO telling me that this happens regularly, where something small is on your transcript and the IRS does not notify due to the small monetary amount involved. I had no idea.

Next time, I will file the transcript request form myself before I app to make sure that everything is okay. Best of luck to you. It will work out.

Re: tax troubles-please advise

Anonymous — Mon, 09 May 2016 05:25:33 GMT

We had a similar problem with 1-1099. Just forgot about it like you said. As long as you filed an amended return they should be able to check it. At least that is what our mortgage broker told us and we had absolutely no problem closing. I would say very similar to a paid tax lien that hasn't shown up paid yet. We worried for nothing.

Re: tax troubles-please advise

Anonymous — Sun, 25 Dec 2016 18:21:10 GMT

Ok I am a mortgage Lender in Oregon and I loan in pretty much all states. Regarding this Tax situation. I have had this with some of my borrowers. In fact I have a refinance that I am going through this deal right now. She is a teacher and totally forgot she was paid a little bit into 2015 but never claimed that income. She got the notice and did the same thing as you all. She filed amended tax return and showed me proof that she paid the difference to the IRS in what she owed them. All we need is proof that the IRS is NOT due any money and papertrail everything. The letter received by IRS and/or copy of amended tax return for that year and we were fine. The only issue is we do have to get tax transcripts and sometimes that can delay things and take 4-6 weeks. I hope this helps.

Re: tax troubles-please advise

Anonymous — Sun, 17 Sep 2017 08:33:29 GMT

Would that be the case also if the borrower asked for a penalty abatement? I'm in a similar situation and my attorney is saying that since it was an honest mistake and I have never had any sort of error on my taxes before that the IRS will be inclined to abate the penalty which would be a huge relief. I just don't want to do that and then find out later that to pay the penalty in full would have been the better option, albeit more painful.

Re: tax troubles-please advise

Revelate — Sat, 23 Sep 2017 03:10:05 GMT

@Anonymous wrote:
Would that be the case also if the borrower asked for a penalty abatement? I'm in a similar situation and my attorney is saying that since it was an honest mistake and I have never had any sort of error on my taxes before that the IRS will be inclined to abate the penalty which would be a huge relief. I just don't want to do that and then find out later that to pay the penalty in full would have been the better option, albeit more painful.

Pretty certain you need to get it sorted either by payment or acknowledgement of the abatement by the IRS; until it's accepted you still owe the penalties (and presumably the original tax as well) and as I understand it, that is a problem from an underwriting perspective.

LO might still be squeamish regardless even if it sounds like this is past 3 years, as technically any outstanding IRS debt within the 10 year SOL can turn into an open lien and that's a no-fly zone typically.