Buyer's Bank Asking For Seller's 1040 Through 4506-T... Weird?

7 Replies

A friend is about to enter escrow as the seller in a business&commercial property sale. The buyer has already submitted the earnest money and signed the escrow documents. The seller is in the process of reviewing and signing the escrow documents to officially open escrow.

Then today, the buyer's bank contacted the seller asking to fill out an IRS form 4506-T requesting the seller's 1040 tax return transcript for the past 3 years from the IRS. The seller has already provided soft copies of the 1040 to the bank but with social security numbers and other personal information blurred out.

The question is... why does the bank need the sellers 1040 from IRS? I looked up the 4506-T document and usually, the banks only request this from the buyer who is applying for the loan. Is it odd that the bank is requesting this document from the seller? I understand if the bank is trying to verify that the soft copies of the 1040 (already provided by the seller) are unmodified, but this seems to be putting the seller in a situation where they are being forced to disclose too much personal information unrelated to the sale of the business/property... Also, how can the seller be sure of the legitimacy of this "bank"??

Does anyone have any experience with this? Is this a valid request by the buyer's bank?

Any advice is truly appreciated. Thanks in advance!

Originally posted by @Allen Chu :

A friend is about to enter escrow as the seller in a business&commercial property sale. The buyer has already submitted the earnest money and signed the escrow documents. The seller is in the process of reviewing and signing the escrow documents to officially open escrow.

Then today, the buyer's bank contacted the seller asking to fill out an IRS form 4506-T requesting the seller's 1040 tax return transcript for the past 3 years from the IRS. The seller has already provided soft copies of the 1040 to the bank but with social security numbers and other personal information blurred out.

The question is... why does the bank need the sellers 1040 from IRS? I looked up the 4506-T document and usually, the banks only request this from the buyer who is applying for the loan. Is it odd that the bank is requesting this document from the seller? I understand if the bank is trying to verify that the soft copies of the 1040 (already provided by the seller) are unmodified, but this seems to be putting the seller in a situation where they are being forced to disclose too much personal information unrelated to the sale of the business/property... Also, how can the seller be sure of the legitimacy of this "bank"??

Does anyone have any experience with this? Is this a valid request by the buyer's bank?

Any advice is truly appreciated. Thanks in advance!

It;'s very odd to my experience. When I was a loan officer, we never requested a 4506-T from the seller. It is immaterial. I'd question it and have a conversation with the bank. It's likely they have confused who the seller and who the buyer are. Personally as a seller, I'd refuse.

Originally posted by Account Closed:
Originally posted by @Allen Chu:

A friend is about to enter escrow as the seller in a business&commercial property sale. The buyer has already submitted the earnest money and signed the escrow documents. The seller is in the process of reviewing and signing the escrow documents to officially open escrow.

Then today, the buyer's bank contacted the seller asking to fill out an IRS form 4506-T requesting the seller's 1040 tax return transcript for the past 3 years from the IRS. The seller has already provided soft copies of the 1040 to the bank but with social security numbers and other personal information blurred out.

The question is... why does the bank need the sellers 1040 from IRS? I looked up the 4506-T document and usually, the banks only request this from the buyer who is applying for the loan. Is it odd that the bank is requesting this document from the seller? I understand if the bank is trying to verify that the soft copies of the 1040 (already provided by the seller) are unmodified, but this seems to be putting the seller in a situation where they are being forced to disclose too much personal information unrelated to the sale of the business/property... Also, how can the seller be sure of the legitimacy of this "bank"??

Does anyone have any experience with this? Is this a valid request by the buyer's bank?

Any advice is truly appreciated. Thanks in advance!

It;'s very odd to my experience. When I was a loan officer, we never requested a 4506-T from the seller. It is immaterial. I'd question it and have a conversation with the bank. It's likely they have confused who the seller and who the buyer are. Personally as a seller, I'd refuse.

Hi Mike,

In your experience as a loan officer did you deal with transactions that included the business along with commercial real estate?

Maybe the process is different if this was just a commercial real estate sale? 

It is definitely very odd, the problem is there is no recourse if you choose not to provide it. The bank can use that as a reason to deny the loan as crazy as that is. Banks can and will ask for everything including your unborn child's name, whether you choose to provide it is up to you but there are consequences. If you are truly concerned about the legitimacy of this "bank" you could look them up see the size of there portfolio on the fdic website. 

It makes sense to me, they want to verify the biz income.  And BTW I, or anyone, can get your social security number and much more, in about 10 minutes, for less than $20.  Verifying the legitimacy of the bank should be simple.

It's not talked about much but sometimes sellers for properties and businesses keep multiple sets of books. Small gas station owners are notorious for this.

The seller gives certain books to a potential buyer to sell them on a certain value. The seller then has a certain set of books and numbers they use to fill out filings to the IRS for income and deductions. You can often find sellers lying to buyers but very rarely to the IRS.

So lenders and buyers tend to put more weight on actual transcript returns from the IRS. If sellers provide financials you want independently audited financials by an outside party. This can get tougher if the seller has many different businesses and they use a main account for deposits. Most business owners are owner/operators that often do not keep great books so it is a crap shoot somewhat.   

You did say property and business, right? Lenders have a couple of legit reasons for this information: 1) Arrive at a value for the business absent a business appraisal; and 2) Verify the cash flow from the business can service the loan. Seems like the buyer would want this information as well.