Fannie Mae Selling Guide B3-3.1-02 — Tax Return and Transcript Documentation Requirements

Fannie Mae Selling Guide B3-3.1-02 — Tax Return and Transcript Documentation Requirements

Effective 2026-06-03 · publisher's stamp for this provision

B3-3.1-02, Tax Return and Transcript Documentation Requirements (06/03/2026) Introduction Tax returns and transcripts can be used to calculate and verify certain types of borrower income. This topic contains the requirements for use of tax return information including: Federal Income Tax Return Standards Using Tax Return Transcripts in Lieu of Tax Returns Use of IRS Form 4506-C to Verify Borrower Income Documentation Retaining Tax Documents Federal Income Tax Return Standards When required, personal federal income tax returns must be copies of the original returns that were filed with the IRs. All supporting schedules must be included. Alternatively, the lender may obtain applicable transcripts of federal income tax returns. “Most recent” tax return is defined as the last return scheduled to have been filed with the IRS. See B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns. Each tax return must be signed by the borrower unless the lender has obtained one of the following signature alternatives: documentation confirming that the tax returns were filed electronically, a completed IRS Form 4506–C (signed by the borrower) for the year in question, or IRS transcripts that validate the tax return. See the specific income topics in Chapter B3-3, Income Assessment for additional information and specific documentation requirements. Using Tax Return Transcripts in Lieu of Tax Returns When federal income tax information is used to document income for qualifying purposes, the lender may obtain transcripts of the applicable federal income tax documents. For example, the lender may obtain Tax Return Transcripts for Form 1040 or Wage and Income Transcripts for W-2s, 1098s, and 1099s. In certain instances, tax transcripts may not provide sufficient detail to support the qualifying income. In those cases, the lender must obtain copies of the actual returns, schedules, or forms. For example, the lender must obtain copies of Schedules B through F, Schedule K-1, or business returns, unless: the income reflected on the applicable schedule transcripts is positive, and the income supported by that schedule or form is not being used for qualifying. If a borrower’s self-employment income from a sole proprietorship (as reported on IRS Form 1040, Schedule C or C-EZ) is validated by the DU validation service, the lender is not required to obtain the tax returns. Documentation in accordance with the DU message is acceptable. The DU message may allow a tax transcript rather than the tax returns. See B3-2-02, DU Validation Service, for additional information. Use of IRS Form 4506-C to Verify Borrower Income Documentation IRS Form 4506-C can be used to obtain tax transcripts for up to four years or tax periods and is valid for 120 days after completion (including signature) by the borrower. The lender must have each borrower whose income is used in qualifying (regardless of income source) complete and sign a separate IRS Form 4506-C at or before closing. An alternative form or process (which may include IRS Form 8821) is also acceptable if it authorizes the release of comparable tax information from the IRS and the borrower has signed an authorization expressly permitting the lender to disclose such IRS-derived information to Fannie Mae. Note: When all of a borrower’s income is validated by the DU validation service, the lender is not required to obtain a signed IRS Form 4506–C for that borrower. Multiple IRS Form 4506-Cs may be required depending on the number and type of transcripts required to verify the income because only one tax form can be requested per each IRS Form 4506-C. For example, a self-employed borrower whose income documentation includes two years each of personal and business tax returns must complete: one IRS Form 4506-C to request transcript of the personal tax returns, and a separate IRS Form 4506-C to request transcripts of the business returns (e.g., Form 1065, Form 1120, Form 1120S). The lender must complete IRS Form 4506-C as follows: Enter the lender’s name (or the name of the servicer, if servicing will be transferred within 120 days of the taxpayer signing the form) as the recipient of the tax documents. Indicate the year(s) or tax period(s) for which the borrower’s income was or will be used in underwriting the loan. Ensure the form(s) is dated on the same day the borrower signs it (or ascertain that the borrower dates the form when they sign it). Note: The borrower should not be required to sign an IRS authorization form before all items on the form, including the transcript being requested, the years/tax periods, and the date, have been completed. In addition, the lender must document the requirement to obtain tax transcripts by submitting the IRS Form 4506–C to the IRS (directly or through an authorized designee) in their written quality control (QC) plan. See D1-3-03, Lender Post-Closing Quality Control Reverifications for details concerning QC requirements. If the lender receives the transcript(s) prior to closing, the transcript(s) must be used to verify the income documentation provided by the borrower and used in the underwriting process. In this case, because the lender has already received the tax transcript(s), an additional signed IRS Form 4506-C is not required to be signed by the borrower. Note: Borrowers with income from Puerto Rico must use Modelo SC 2907 (Solicitud De Copia De Planilla, Relevo De Herencia Y De Donacion) rather than IRS Form 4506-C. Applicable forms or processes for eligible borrowers filing tax returns in other U.S. territories must be adhered to and obtained when required. Retaining Tax Documents The lender must retain all tax documents, including either the IRS Form 4506-C or the tax transcript(s) and any subsequent explanation or documentation of discrepancies in the loan file for QC review.

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