What Is Borrower Consent to the Use of Tax Return?

When a mortgage lender asks you to sign a Form 4506-C, you are giving borrower consent to the use of your tax return information: written permission, required by federal law, that lets the IRS release your tax transcripts to the lender so it can verify the income on your loan application. The legal authority sits in Internal Revenue Code Section 6103(c), which keeps tax returns confidential by default and allows disclosure to a third party only when you designate that party in writing.¹ No signature, no transcripts, no loan.

What You Are Actually Authorizing

Your signature does one specific thing: it tells the IRS to send tax return information to the lender you name on the form. Section 6103(c) also limits what the lender can do with that information once it arrives. The lender may use it only for the purpose you consented to, which in a mortgage context means evaluating your loan. It cannot pass your data to unrelated parties without further permission from you, and it cannot repurpose it for marketing or any other use.¹

The Taxpayer First Act, enacted in 2019, tightened this by adding explicit language to Section 6103(c) prohibiting redisclosure or unauthorized use by designated recipients.² The point is that consent is narrow by design. You are not opening a general window into your tax history; you are authorizing one lender, for one loan file, for one review.

How Long the Consent Lasts

Form 4506-C is valid for 120 days from the date you sign, and the IRS must receive it within that window or it will be rejected.³ That clock starts the moment you sign, so processing delays on the lender’s side eat into it.

If your closing slides past 120 days because of appraisal disputes, title problems, or open underwriting conditions, expect to sign a fresh form. If you abandon the application or move to a different lender, the old consent effectively ends. A new lender cannot use a form you signed for someone else; each institution needs its own authorization with its own identifying information on the form.

What the Form Asks For

Form 4506-C is titled “IVES Request for Transcript of Tax Return,” and the IRS processes it with optical character recognition, which means small formatting errors trigger rejections. The fields that matter for you as the signer:

Your legal name exactly as it appears on the return you filed. The form allows 12 characters for a first name and 22 for a last name, and a previous name goes on a separate line if you’ve changed yours since filing.³
Your Social Security number, ITIN, or employer identification number, entered with dashes.
Your current address, including any P.O. Box.
The address shown on your last filed return, if different from your current one. A missing apartment number or abbreviated street name that doesn’t match IRS records is one of the most common causes of rejection.
A single tax form type per request (1040, 1065, 1120, etc.); listing more than one causes rejection.³
The tax years you’re authorizing, up to four. Lenders usually request the two most recent, more for self-employed borrowers.

Both taxpayers on a joint return must sign in their assigned signature sections. If you sign electronically, the box confirming electronic signature must be checked; if you sign by hand, that box must be left unchecked. Getting either wrong will send the form back.⁴ Rejections are fixable; the cost is time, and each round trip can add days to closing.

Signing Electronically

Most lenders now route the consent through electronic signature platforms. You’ll usually get a secure email link, sign through a service like DocuSign, and receive a time-stamped confirmation. The IRS permits electronic signatures on Form 4506-C, but the lender’s system has to authenticate you first.

Approved methods include two-factor authentication (something you receive, such as an emailed code, paired with something you know, such as a passcode), knowledge-based authentication using multiple-choice questions drawn from your credit history, or single sign-on credentials passed from another verified session.⁵ The name attached to your electronic signature must match the name on the form. You’ll also see a short acknowledgment asking you to consent to receive and sign documents electronically before the actual form appears. Some transactions still require a wet-ink signature when the lender isn’t set up for electronic IVES processing.

How the Lender Uses Your Transcripts

When the transcripts come back from the IRS, the underwriter compares them against the income documents you already provided: pay stubs, W-2s, self-employment records. The goal is to confirm that the income on your application matches what you reported to the IRS. That comparison also feeds the debt-to-income ratio the underwriter uses to decide whether you qualify.

Discrepancies get flagged. If a W-2 in your file shows $85,000 but the IRS transcript for the same year shows $72,000, the underwriter will ask you to explain before the file moves forward. This cross-check is the industry’s main defense against income misrepresentation, which is why lenders rely on IRS data rather than borrower-provided documents alone.

Your Protections if the Information Is Misused

If a lender inspects or discloses your tax information outside the scope of your consent, IRC Section 7431 gives you a private right of action. You can sue for the greater of $1,000 per unauthorized act or your actual damages, with punitive damages available on top of actual losses when the misconduct is willful or grossly negligent. Courts can also award litigation costs and, in some cases, reasonable attorney’s fees.⁶

You have two years from the date you discover the unauthorized disclosure to file. There is one safe harbor: if the disclosure resulted from a good-faith but mistaken interpretation of Section 6103, the disclosing party has a defense.⁶ That defense matters when there’s a genuine dispute about what falls within the “express purpose” of your consent. It does not cover a lender that sells your tax data to a marketing firm or shares it with an unrelated business.

One boundary worth naming: the criminal and civil penalties in IRC Sections 7216 and 6713 that come up in conversations about tax data privacy apply to tax return preparers, not to mortgage lenders. Your lender’s obligations run through Section 6103(c) and the consent you gave on Form 4506-C.

What Happens if You Refuse

You have the legal right to decline. On a conventional mortgage, refusal almost always ends the application. Fannie Mae and Freddie Mac both require tax transcript verification as part of their quality control, so a lender originating a conforming loan has no way to proceed without your signature and no way to sell the loan afterward if the documentation isn’t in the file. Fannie Mae’s own guide requires each borrower whose income is used in qualifying to complete and sign a Form 4506-C at or before closing.⁷

Bank statement loan programs are the main alternative. These non-qualified mortgage products verify income through 12 to 24 months of bank deposits instead of tax returns, and they’re designed for self-employed borrowers and others whose returns don’t cleanly reflect their cash flow. The trade-offs are real: expect a credit score above 680, a down payment of 10 to 20 percent, higher cash reserve requirements, and interest rates roughly 0.5 to 2 percentage points above conventional loans. These programs come from specialty non-bank lenders and portfolio lenders rather than major banks.

These aren’t the pre-2008 “no-doc” loans. Bank statement programs still have to comply with the Dodd-Frank Act’s ability-to-repay rules, so the lender must make a reasonable determination that you can afford the payments. Your deposits are being analyzed, not ignored.

1
Office of the Law Revision Counsel. 26 USC 6103 – Confidentiality and Disclosure of Returns and Return Information
2
GovInfo. Taxpayer First Act, Public Law 116-25
3
Internal Revenue Service. Form 4506-C – IVES Request for Transcript of Tax Return
4
Internal Revenue Service. IRS Income Verification Express Service (IVES) FAQs
5
Internal Revenue Service. How to Get Started Using IVES Electronic Signature
6
Office of the Law Revision Counsel. 26 USC 7431 – Civil Damages for Unauthorized Inspection or Disclosure of Returns and Return Information
7
Fannie Mae. B3-3.1-02, Tax Return and Transcript Documentation Requirements