When issuing credit cards, the issuer has the right to close accounts if it suspects suspicious or risky activity. In the vast majority of issuers, a request for verification of income is usually sent prior to closing the accounts. In any case, this may be IRS Consent Form 4506-C.
This form will be a request for a tax return transcript. It will allow the financial institution or credit card issuer to review your tax returns with the IRS. The vast majority of lenders use the form to verify that the income you reported is on your tax return.
Which credit card issuers require this form?
IRS Consent Form 4506-C is normally requested by the two major credit card issuers, which are American Express and Discover. Let’s get to know the cases in which you may be required to file this form:
Beginning in 2019, Discover began requesting this form from individuals applying for new credit products. This is for the purpose of verifying credit limit increases, unusual purchase activity, and high credit limits.
Existing Discover customers have also been asked to complete this form. This is whenever any type of bank credit-related activities are performed.
This issuer performs the financial review to verify the purchasing power of customers who want their credit cards. Another trigger for them to ask you for this type of form is if you have too much credit limit on all their Amex accounts.
The limit varies depending on income, but generally, if it exceeds $35,000 on all your Amex accounts you will need to submit the form. Financial reviews conducted by American Express can last from 1 to 3 weeks. Depending on the results of the financial reviews, your credit may remain unchanged or credit limits may be adjusted.
Chase and other credit issuers
In the vast majority of cases, Chase does not make the IRS Consent Form 4506-C request to its customers. This is usually because, being a bank, most of its credit card customers also have a bank account or assets with the bank.
Citi and Barclays will normally request the form if any suspicious activity is detected. For this reason, if you apply for different credit cards or want to extend your credit, they may require the form.
What to do if Discover requests an IRS Consent Form 4506-C?
In the event that you receive a request for an IRS Consent Form 4506-C from Discover, you will need to complete it as soon as possible. In this way, possible account closures can be avoided, because failure to complete the form could result in your accounts being closed.
You may run the risk of having all of your accounts closed if you do not comply with the request on this form. In addition, this will negatively affect your credit score, especially if some of your older accounts are with this issuer. Also, you could be blacklisted by credit issuers.
Can you avoid going through a financial review?
There are a few tricks to avoid requesting an IRS Consent Form 4506-C, including:
- Avoid unusual behavior. In case they are unavoidable, it is best to call the card issuer to inform them that you are about to make an important purchase.
- It is always better to keep your credit card usage low. In case you have a high utilization, the ideal is to pay before the statement is closed. It is good to pay off the balance in advance so that the bank will not report a high utilization rate.
- It is important to have a reasonable credit limit range. It is not recommended to request a higher credit limit if it is not necessary.
If you follow these tips, you may not be asked to fill out the form, although you will not be completely exempt. Therefore, it is important to know that these types of financial reviews are quite common.
When is IRS Consent Form 4506-C not required?
There are specific instances where IRS Consent Form 4506-C is not required when a credit product is to be taken out with Discover or another issuer. It will not be required if the borrower’s income is validated by the Desktop Underwriter or DU validation service.
However, if not all income can be validated through the DU system, they may end up asking you for the completed and signed form. This is a form that will only be valid for 120 days from the date of signature by the borrower.
How should the IRS Form 4506-C be completed?
It should be noted that this form can be requested even if you are not required to file a federal income tax return. To properly complete the form you should follow these tips:
- Enter the name of the taxpayer listed on the tax return in section 1a.
- Enter the taxpayer identification number, i.e. SSN.
- In the case of companies, the company’s EIN must be provided.
- If the current name is different from the requested tax transcript, the previous name must be entered in section 1c.
- It is important to provide both current and previous addresses.
- The tax transcript that was filed must be reported.
- The box should be checked only for 6C.
- Complete section 8 with the last 2 years of recent income tax returns, or 3 years if you are a company.
- It must be signed and dated by the taxpayer, and the box in the signature area must always be checked to acknowledge the authority to sign and request the information.
Remember that, all the data you put in the form must be correct, because otherwise you could have inconveniences with the application. Remember, this is an important aspect of filling out the IRS Form 4506-C, because you could end up with your credit accounts closed if there are any errors.
- Income Verification Express Service | Internal Revenue Service. (n.d.). https://www.irs.gov/individuals/income-verification-express-service
- When is a signed IRS Form 4506-C required? (n.d.). https://sellingguide.fanniemae.com/Underwriting-Borrowers/Income-Assessment/Employment-Income/Transcripts-4506C-/1032970741/When-is-a-signed-IRS-Form-4506-C-required.htm
- Ask Sebby. (n.d.). https://www.asksebby.com/guides/avoid-card-shutdowns-financialreviews
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.