On March 1, 2023, SBA issued SBA Procedural Notice 5000-844866, Extension of Guidance for Revisions to SOP 50 10 6 Financial Information Verification Procedures to Allow for the Use of IRS Forms 4506-C or 8821 for 7(a) and 504 Loans, which extends the guidance provided under SBA Procedural Notice 5000-829416 until March 1, 2024. These Procedural Notices expand the options 7(a) Lenders and Certified Development Companies (collectively, “SBA Lenders”) may use to obtain IRS tax transcripts of small business applicants under the SBA 7(a) and 504 Loan programs (collectively, “SBA Loans”). Under the current Procedural Notice, SBA Lenders may continue to use either IRS Form 4506-C, IVES Request for Transcript of Tax Return (Revision October 2022) or IRS Form 8821, Tax Information Authorization.
SBA Lenders are required to document and retain in their loan files the verification and reconciliation of an applicant’s financial data against income tax data received from IRS.
The purpose of SBA’s tax verification process is to confirm that: (i) the applicant filed business tax returns; and (ii) the applicant’s financial statements provided as part of the application for the SBA Loan are consistent with the business tax returns submitted to the IRS. SBA Lender must complete its financial information verification, for 7(a) loans, prior to first disbursement of loan proceeds, or for 504 loans, prior to submitting the closing documents to SBA counsel.
SBA Lenders must obtain tax return transcripts for the applicant (or the Operating Company if the applicant is an Eligible Passive Company) for the three (3) years prior to the application, or for all years in operation, if less than three (3) years. If the SBA Lender is using the Alternative Size Standard for determining eligibility under the SBA size requirements, only the last two (2) years tax returns are required to be verified (or for all years in operation, if less than two (2) years). This requirement does not include tax information for the most recent fiscal year if the fiscal year-end is within 6 months of the date SBA received the application. If the applicant has filed an extension for the most recent fiscal year, the SBA Lender must obtain a copy of the extension along with evidence of payment of estimated taxes.
Historically, SBA Lenders were required to use IRS’s Income Verification Express Service (IVES) program and submit an IRS Form 4506-C (which replaced IRS Form 4506-T) to obtain the required tax transcripts. By consenting to the use of IRS Form 8821, SBA is addressing the delay many SBA Lenders have experienced obtaining tax transcripts through IVES in recent years. SBA Lenders using IRS Form 8821 must ensure the type of transcript requested contains any changes to the original return. The SBA Lender must be listed as designee in Line 2 of IRS Form 8821, and only the SBA Lender may be designated to file IRS Form 8821 for purposes of financial information verification in connection with an SBA Loan. When the box on line 4 of the IRS Form 8821is checked, the IRS Form 8821 authorization request will apply only to the specific loan application and will not revoke any prior authorizations provided by the taxpayer.
Other than expanding the choice between IRS Form 4506-C or IRS Form 8821, SBA Lenders must continue comply with all requirements for Financial Information Verification process set out in SOP 5010(6), pgs. 204-207. Failure to verify the applicant’s financial data in compliance with SBA’s guidelines may result in a denial of the SBA guaranty. For more questions on SBA compliance please contact Kim Rayer at firstname.lastname@example.org.