On July 1, 2019, the Taxpayer First Act of 2019 was signed into law. The legislation expands taxpayer rights and reforms the Internal Revenue Service (IRS) into a more consumer friendly agency through focus on customer service, technology and enhancing cyber security. Effective December 28, 2019, Section 2202 of the Act, amends IRS law 26 USC 6103(c) to include the following language:
“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.”
Financial institution generally obtain, and may share, tax return information as part of credit transactions; both obtaining and redisclosure may require the lender to obtain consent and may also limit sharing of information under the Act. The IRS recently offered the following clarification:
“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.”
Financial institutions may need to adjust processes in order to obtain consent prior to obtaining and/or redisclosing tax return information received from the IRS after the effective date. The Mortgage Industry Maintenance Organization (MISMO) has information and resources available that financial institutions may want to consider. In addition, an institution’s forms, vendor may have resources available. Compliance Resource encourages financial institutions to review requirements of the Act, along with potential enhancements to their procedures and disclosures, with their legal counsel.