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Accepting electronic signatures on loan documents? Here’s a well-kept secret you should know.

Jul 07, 2021

Pre-pandemic, many financial institutions used electronic document delivery systems, including in some cases, to obtain electronic or digitized signatures on various documents.

Since the onset of the pandemic the option for electronic document delivery has become almost a “must have,” and the acceptance of electronic signatures has skyrocketed.

On July 1, 2019, the Internal Revenue Service (IRS) stopped mailing tax transcripts to third parties to better protect taxpayer information. If you obtain and rely on tax transcripts from the IRS to verify a loan applicant’s income, tax transcripts for both individuals and businesses can be obtained through the IRS’s Income Verification Express Service (IVES).

In order to receive tax transcripts through IVES, participants must register with e-Services and follow the published guidance that addresses electronic signatures on forms used to request tax information, including Form 4506-C (4506-T and 4506-EZ).  

You probably knew that. But, did you also know that to utilize the electronic signature process, IVES participants must validate that signers are who they say they are (authentication), obtain consent from the signer to receive and sign documents electronically and ensure that the electronic signature establishes a person’s intent to sign the applicable Form 4506?

And, after the electronic signature is collected, the document must be made tamper proof to ensure its validity. Retention of an audit log of the electronic process is required for at least two years.

Because the IRS is unable to validate all of the above requirements have been met, IVES participants must implement a quality review process that includes using an independent party to audit and ensure all electronic signature requests meet the above requirements.

That is the part of the process some financial institutions overlook.

Specifically, a monthly audit of up to 125 files with electronically signed Form 4506-C, 4506-T or 4506-EZ, must be completed within 30 days of the end of the month. And, an annual report, including the monthly results and total annual computations must be submitted to the IVES Program by January 31 each year.

A February 2021 report on the IVES Program from the Inspector General for Tax Administration found that as of July 31, 2020:

  • Only 206 participants responded to the request to certify whether they were submitting electronically signed Forms 4506-T.
  • Of the 53 participants who responded that they were in fact using electronic signatures, 38 did not provide the required audit report.
  • Of the 15 audit reports submitted, 10 did not address all key electronic signature requirements.

If your financial institution participates in the IVES program, we recommend you ensure an independent audit is performed monthly, that the audit covers all required areas, and that the results of the audit are submitted annually as required. Per the IRS, IVES participants who are found to not be obtaining the required audits will not be allowed to participate in the program. Is that a chance you are willing to take?

How Wipfli can help

For information about how Wipfli could help you meet the IVES independent audit requirements, contact Kathy Enbom, Principal at kenbom@wipfli.com, or AnneMarie Marchel, Manager, Secondary Market Quality Control at amarchel@wipfli.com.

Author(s)

Cindy L. Mabry, CRCM, CCBCO
Senior Manager
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