IRS Clarifies Taxpayer First Act Confidentiality Provision
Happy New Year Compliance Friends!
The Internal Revenue Service (IRS) recently clarified a provision from the Taxpayer First Act of 2019 (TFA) that went into effect on December 28, 2019. The new law, adopted in July 2019, amends the Internal Revenue Code of 1986 (IRC) and has caused some anxiety among credit union compliance officers and lending personnel who have wondered about the extent to which these requirements apply to existing loans. The short answer from the IRS guidance is no.
To back up a bit, section 2202 of the TFA amends section 6103(c) of the IRC by adding a provision that limits the ability of credit unions that receive tax returns directly from the IRS to further disclose this information beyond the express purposes of the consent. Credit unions are also prohibited from disclosing return information to any other person, including investors without the express permission of, or request by the taxpayer. The language added to section 6103(c) reads:
``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.''
IRS added clarifying guidance to its website explaining that section 2202 only applies to new consent agreements involving the disclosure of tax return information by the IRS to third parties after the effective date of December 28, 2019. Here is a brief excerpt from the guidance:
“This provision limits the redisclosure and use of return information in the case of taxpayers who have consented to the disclosure of their return information by the Internal Revenue Service to a third party under IRC section 6103(c). Section 2202 of the Taxpayer First Act applies only to disclosures made by the Internal Revenue Service after December 28, 2019, and any subsequent redisclosures and uses of such information disclosed by the Internal Revenue Service after December 28, 2019.”
Recently, credit unions have asked NAFCU about the particular language to include in consent agreements. Since the IRS declined to provide a model form or sample language, credit unions should consult with legal counsel regarding any appropriate changes to make to tax return consent agreements given the complexity of tax and contract law. In case it helps, the Mortgage Industry Standards Maintenance Organization has drafted a sample Taxpayer Consent Form that is available on their website. While NAFCU does not attest to its legal sufficiency to satisfy these requirements, the form does seem to be endorsed by the mortgage industry, including the government sponsored entities. As far as additional guidance is concerned, Fannie Mae issued a Selling and Servicing Notice and Freddie Mac issued a similar notice in addition to some Frequently Asked Questions.