For individuals whose only source of income is through W-2 employment, income reporting to a lender is straight-forward. The lender knows that the W-2 an individual received has been sent to the IRS so they feel comfortable that the income reported on the W-2 is correct and verified. 

For self-employed individuals, income is not reported on a W-2 so it is up to the individual to "self-report" the income to the government. The self-employed individual may prepare their tax return themselves or engage a CPA to prepare their tax return. No matter who prepares the return, income is reported on the individual's Form 1040 tax return, on a Partnership tax return, or on an S-Corp tax return. For those who receive a K-1 from a Partnership or S-Corp, that K-1 pass-through income will, in turn, be reported on the individual's 1040 tax return.

In the case of self-employed mortgage/loan applicants, since the income is self-reported, the lender will typically ask to have a third party verify the income being reported. This has become common practice, especially in recent years after COVID. The lender will request a CPA letter, or CPA "comfort letter," but sometimes that request can be vague on what the lender is really asking for.

• Find out from the lender precisely what information they actually want.
• GO CPA needs to know the specifics to determine if we're able to provide the information or not. 
• Push back on the lender - Many lenders will forgo the CPA letter and continue with the mortgage/loan application process without one.
• If a letter is a requirement for the application, GO CPA will need to review the specific information requested and make a determination on what can be provided.

GO CPA will not automatically provide information to a third party just because it has been requested. First and foremost, the client must give us consent to release the information. If that consent is not given, the client's information will not be given to any third party.

Guidelines we follow to determine what information can be released

1. We always follow IRS guidance and rules relating to disclosure of information to third parties, such as lenders. 
2. We also follow American Institute of Certified Public Accountants (AICPA) guidance. The AICPA is the governing body that sets ethical standards for the accounting industry.
3. We follow our firm's liability insurance policy guidelines.

What we are able to provide and what we are not able to provide. 

GO CPA does try to help self-employed individuals as much as possible, however, there because of rules, guidelines, and industry standards, we cannot provide certain information requested by third parties which can leave us liable for insurance and legal liability purposes down the road. 

• Based on the rules, guidelines, and standards we follow, there is one thing we absolutely cannot do. GO CPA cannot give assurance to a third party, such as a lender, that the data they are reviewing has been legally audited, meaning it has been reviewed and a formal opinion issued stating that the information is verified and accurate. As a tax CPA, GO CPA is NOT allowed to provide assurance activities.
  • If the lender is looking for audited information or an assurance statement, it is generally a requirement the individual can push back on because most mortgages/loans are not going to require an audit. 
  • Audits are very expensive and time consuming, and generally an unreasonable request for a mortgage or loan. 
• GO CPA can provide a "tax return verification letter." 
  • States that GO CPA reported the self-employment income on the individual's tax returns based on the information provided by the individual and following IRS guidelines and the federal tax code. 
  • Does NOT provide a statement on the financial condition of the person or their business.
• Lender requests for information not reported on a tax return
  • A lender can/should be looking at other sources for information they need that is not found on a tax return and does not need assistance from a tax professional such as the following, among others:
    • Secretary of State website
    • Department of Revenue website
    • Business bank account statements
    • Payroll reports