IRS Tax Transcripts - The 360° X-Ray Smart Businesses Use to Eliminate Risk

December 11, 2023

One of our clients had a simple question for us, “So the difference here is account transcript versus tax transcripts?” At that moment I recognized many businesses still have questions about these IRS records. What exactly are account transcripts versus tax return transcripts? And more importantly, why should businesses care about obtaining them?

Unlocking Financial Insights: How Tax Transcripts Empower Lenders and Fuel Business Expansion

Imagine you're an underwriter at a bank or a fintech company reviewing Maggie's small business loan application. Maggie's business has been thriving, and she is seeking funds to fuel her expansion plans. As part of the standard financial assessment process, you request two years of tax transcript history from Maggie. This is because tax transcripts provide valuable third-party data on the financial health and stability of her business. While Maggie may not be familiar with the term "tax transcript," it is an essential tool that allows the lender to make informed lending decisions based on verified and objective information about her business's financial performance. Analyzing the detailed financial records provided in tax transcripts can give us a high-level view of Maggie's business finances, which can be used as an alternative data set to supplement credit scores, bank feeds, and accounting books. This information can provide valuable insights into Maggie's financial position and help us make informed decisions regarding her business. This enables us to serve Maggie better by offering tailored financial solutions that align with her specific needs and aspirations — and save time and money on other siloed sources of data.

Understanding IRS Transcripts: Account Transcripts vs Tax Return Transcripts

The IRS generates two core transcript types that provide snapshots of a business's tax compliance and finances. In a previous article, we discussed tax forms that are publicly available to businesses. However, the majority of tax transcripts are for private companies and are not accessible to the public. To access these records, authorization from the business owner is required. Fortunately, for our clients, obtaining consent and authorization from business owners is a standard requirement when offering our products and services.

Account Transcripts summarize top-level information reported on tax returns—total income, deductions, taxable profit/loss, payments made, refunds issued, and debts owed. They checklist any post-filing account activities like audits, appeals, penalties assessed, and interest accrued. Think high-altitude view.

Conversely, Tax Return Transcripts reproduce every line item and schedule from actual submitted returns. They break down granular specifics including revenue sources, expense categories, assets, credits claimed, taxes calculated, and payments rendered. Think zoomed-in detail.

Access to both eagle-eye Account Transcripts and meticulous Tax Return Transcripts arms businesses with 360° visibility into partners’ and customers’ financial fitness—as Maggie quickly realized upon approving IRS disclosure to her hopeful lender.

Comprehensive tax transcript insights provide pivotal intelligence across critical business functions:

Financial Due Diligence - Buyers/investors review target companies’ past compliance, revenues, deductions, debts and more to uncover red flags and optimize deal terms.

Insurance Underwriting – Applicant transcripts allow insurers to validate reported income for accurate premium and coverage alignment.

Lending Decisions – Creditors dig into repayment abilities by analyzing applicants’ earnings, expenses, losses and tax accounting methods over time.

Background Checks & Fraud Prevention – Employers examine applicant transcripts to judge trustworthiness since dishonesty with the IRS signals broader integrity issues.

I recently had a conversation with a product leader from one of the biggest credit bureaus. They highlighted that one of their primary challenges is identifying commercial fraud. By using a tax transcript, the risk of fraud can be significantly reduced. This is because the chances of a synthetic submitting a fake tax transcript are very low, compared to the possibility of a business creating fake financial statements, credit scores or bank statements.

From M&A to credit to transcripts deliver an unparalleled 360° view of counterparty credibility to power informed business decisions. That’s why 89% of Fortune 500 firms now require transcripts across functions.

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