How and Why to Request a Tax Transcript From the IRS

Most people keep a copy of their tax returns after they file. And, if they don’t retain a copy themselves, they may rely on their CPA to keep a copy. But sometimes, you may need a tax return from many years ago and a copy isn’t immediately available. Another situation might arise where the third party that’s requesting your old tax return won’t accept it directly from you. The reasoning behind that is that they need verification that the document has not passed through your hands into theirs. This helps to ensure that the return is authentic and hasn’t been tampered with.

There is a difference, though, between an old tax return and a tax transcript. The tax return is, of course, the official document that your CPA files with details of your financial information and calculations for taxes and other pertinent data. A tax transcript is a different kind of document that proffers certain information in a summarized form. Depending upon what kind of tax transcript it is, it will have the financial information that’s relevant to the purpose for which it’s requested. In most cases, when a third party requests IRS documents, it’s a tax transcript, not the actual tax return, that they are asking for.

What Are the Different Kinds of Tax Transcripts?

There are five variations of tax transcripts:

1. Tax Return Transcript
This is the most similar to the actual tax return, but still different. It has most of the line items, schedules and forms from your tax return. If you filed an amended tax return after your original filing, the tax return transcript may not reflect those changes.

2. Tax Account Transcript
This variation does reflect changes made after filing an original tax return. It also shows a summary that includes filing status, marital status. taxable income, return type (Form 1040, 1040A or
1040EZ), payment types and adjusted gross income.

3. Record of Account Transcript
This type of tax transcript is actually a combination of the actual tax return, plus the tax account transcript noted above.

4. Verification of Non-Filing Letter
This is a formal letter from the IRS that they did not receive a tax filing for the requested year. Note that it doesn’t state whether or not you were actually required to file for the year in question.

5. Wage and Income Transcript
This is another kind of verification in the form of a transcript that states your wage and income data for the requested year.

Reasons For Requesting a Tax Transcript

Many situations arise in life where a third party might request that you provide them with a tax transcript. Some of the most common are:

You Wish To Be Considered An Accredited Investor

An accredited investor status is required in order to make certain types of investments. This status assures the third party that you are financially able to withstand losses should they occur from your investment with that third party. As recommended by the federal government and the Securities and Exchange Commission (SEC), only a subset of investments, such as hedge funds, certain private placement agreements, and similar deals, need accreditation. The SEC rules are not meant to be exclusive; rather, they are there to safeguard regular people from risking their savings and hard-earned money on investments they may not fully comprehend. The code of federal regulations outlines the meaning of an accredited investor. A third party, where you wish to invest, may request a tax transcript in order to comply with those regulations and grant you accredited investor status.

You’re Applying For a Mortgage

Traditional mortgage lenders may request a tax transcript to verify your stated income and to qualify you for the mortgage. This is the case whether you apply online or in-person. Of course, there are hard money lenders and no-qualifying lenders, but those are a different story, with a different set of qualifiers.

You’re Applying For Financial Aid

If your son or daughter is applying for financial aid, their college of choice will need your verification of income; typically in the form of a tax transcript. In most cases, they will request the tax return transcript, but not always.

You’re Requesting a Change to Child or Marital Support

If you pay child or marital support and your income has changed since the original court ruling, you may be asked to provide a wage and income transcript to demonstrate the changes to your household income.

You’re Applying For a Rental

If you work for yourself, the new landlord may ask for proof of your income. In that case, a record of account transcript will usually satisfy their requirements.

You’re Buying Real Estate Overseas

If you’re attempting to purchase a property in another country, you’ll likely need to provide the foreign lender with official documentation of your income. The tax account transcript would certainly meet their needs.

You Want to Retire Overseas

If you plan to retire in certain countries as an American citizen, you may need to satisfy their minimum income requirements in addition to savings account minimums in order to get a resident visa. They will inform you as to what specific financial information they need, but a wage and income transcript may fit the bill.

How to Get a Tax Transcript

There are companies that offer services to get a tax transcript. However, you can obtain a tax transcript at no charge directly from the IRS website. If you are confused about what to order and how to order, your CPA can assist you with the process. Expect a delay of between four to six weeks, so be sure to place your request as soon as possible to avoid disappointment. Finally, be sure to find out ahead of time whether the tax transcript needs to be delivered straight into the hands of the requesting party, or if you should take delivery of it first.

Last, if you didn’t file a tax return for some valid reason, you can simply request the afore-mentioned verification of the non-filing letter. As always, consult with your CPA for questions about this and other tax-related matters.