Determining the Need for Federal Income Tax Returns

The underwriter must obtain copies of the borrower’s signed federal income tax returns filed with the IRS for the past one year for the following sources of income or employment.

One year tax returns are required if the borrower

• is employed by family members;

• is employed by interested parties to the property sale or purchase;

• receives rental income from an investment property;

• receives income from temporary or periodic employment (or unemployment) or employment that is subject to time limits, such as a contract employee or a tradesman;

• receives income from capital gains, royalties, or other miscellaneous non-employment earnings reported on IRS Form 1099;

• receives income that cannot otherwise be verified by an independent and knowledgeable source (two years’ returns);

• receives foreign income ;

• receives interest and dividend income ;

• receives tip income reported on IRS Form 4137 that was not reported by the employer on the W-2; or

• receives income from sole proprietorships, limited liability companies, partnerships, or corporations, or any other type of business structure in which the borrower has a 25% or greater ownership interest. Borrowers with a 25% or greater ownership interest are considered self-employed. The underwriter must document loan application using the requirements for self-employed borrowers, as described in Self-Employment Income.