Lender asks for letter about client's income for 2021

Client earned significantly more income in 2020 than in 2019. Client wants to buy a house. Lender needs comfort letter that client's income will be about the same in 2021. I believe it will be because client has found a different marketing venue. Current 2021 income is on par with 2020 income.

I have a template for when a lender asks me to verify client's tax returns. But nothing for this situation and I'm wondering if the lender can come after me for saying "I expect client to earn at least as much in 2021 as she has in 2020".

Lenders are looking to punt liability...

I would avoid verifying ("believing" is a far different standard than verifying/assuring/etc.) anything about tax return information provided by the client -- especially predictions about its future state.

Though NAEA does not have guidance that I am aware of, the AICPA has a well-worn trail; Google "comfort letter" to find all sorts of resources.

Thank you! Found some good wording to ward off liability.

See this discussion, too
viewtopic.php?f=11&t=21283&hilit=banker

I said it in the other thread and I'll say it again:

The sooner tax preparers refuse to respond to these ridiculous requests, the sooner they'll stop asking.

I said it in the other thread and I'll say it again:
The sooner tax preparers refuse to respond to these ridiculous requests, the sooner they'll stop asking.

You are right. However, I can't tell clients I'm not going to write a letter if I want to keep a good relationship with the client. I do charge for these letters, but it's a nominal fee. You're right about that it's abuse of powers by lenders who don't want to do the work to check if someone truly qualifies for a refi or mortgage. It saves them time and time is money.

An hour later, guess what happened? Client calls and tells me that an assisted living facility didn't want to give him a break down of fees for housing, amenities, services and medical expenses. 'Your CPA knows that" they told him. "How I am supposed to know what this Assisted Living Facility spends on each category?", I asked my client.

I think the client saw how ridiculous this refusal of the Assisted Living Facility (ALF) was to give their potential client a breakdown of what they would be paying for. Fight back against being assigned responsibility for numbers you can't possibly know. Things to say to a client: " I wonder why they don't want to give you these numbers? Shouldn't you be entitled to know what you're paying for?" Credibility of ALF slashed ... and for good reason. These facilities want their clients to pay north of 7K a month but refuse to tell the potential client what they're getting for the money? And then they tell the potential client that the client's CPA would know this...

Most assisted living facilities around here give a nice letter that says xx% of your monthly fee may be deductible as medical expense. So I just had a client go ask the facility where her mother lives for the letter. They told her they don't do that and to consult her CPA.

I get this routine request all the time and I politely refuse and tell my client that all I can provide is a copy of their last tax return with their authorization. I can not predict what future income will look like.

I do not write letters to lenders under any circumstance. Period.

I'm not a CPA, but I believe that this is well beyond the scope of what most CPA's can do for their clients and, in my opinion, they are leaving themselves open to being responsible for some of the loan in the event that the borrower does not make payments.

This should be done by an independent auditor that has the insurance and the training. Usually the bill is 5 digits or at least in the upper 4 digits.

I warn new clients about this in advance and it is in all of my marketing materials, website sales pages, price brochures, and engagement agreements.

I get this routine request all the time and I politely refuse and tell my client that all I can provide is a copy of their last tax return with their authorization. I can not predict what future income will look like.

This...100%.

A seminar I go to usually provides a so-called "lender letter" which is what I use. I understand why not everyone wants to write these letters for clients. Has someone ever heard of a CPA or EA being held liable if client could not make the loan payments? I'm just asking out of curiosity and very much understand that one wouldn't want to write these letters.

Due mostly to same circular discussions ending with two of the three parties not getting what they want. (May, or may not, include exaggeration)

Lender: “Your loan is going to underwriting in a few hours, but first I need a letter from your CPA”

CPA: Sends letter (from seminar template).

Lender: “This won’t do. It needs to say borrower will be solvent, forever.”

CPA: “I can’t say that.”

Lender: “Well, your CPA is holding up the loan. Also, it is your CPA’s fault if you don’t get this loan.”

Client/loanee: Gets loan anyway.

TaxKeeper, yes, it's my experience as well that the client will still get the loan. I just found out that my client's loan had been pre-approved, even though the lender hadn't received my letter yet.

The number of documents requested by lenders nowadays is extreme. One client had a list of about 40 documents that the lender wanted. The work to find, retrieve and gather it all amounts to a part-time job. Surprisingly, this lender didn't ask for a comfort letter from me.

This goes beyond traditional auditing or assurance. The bank is asking you to provide assurance regarding events that have not yet transpired. I believe there is a such a service that helps out here. It is called "insurance". The bank is barking up the wrong tree.

This goes beyond traditional auditing or assurance. The bank is asking you to provide assurance regarding events that have not yet transpired. I believe there is a such a service that helps out here. It is called "insurance". The bank is barking up the wrong tree.

Totally agree. The bank is just looking for whom they can potentially held liable if client's income goes down. If the AICPA would start fighting against these type of requests by lenders, then AICPA could bring an end to these type of requests. AICPA is a powerful organisation which can help us not waste our valuable time on this. But CPAs have to ask AICPA.

These lender letter and income guarantee requests may ultimately come from the banks' insurance companies who ask the lender that they do due diligence. The lender passes the due diligence onto tax professionals because it saves them time to have the someone else do the due diligence. We're seen as service oriented businesses who will comply with these type of requests from clients.