The letter below is to Lance Smith out of the Arden Hills Branch. I also received a call from Bradley Kolstad, insisting that the underwriter was right and it was apparent that he and I were interpreting the IRS Topic 514 differently. I guess, Brad was doing the Code of Blue. The borrower is Raymond Wilson applied for an FHA loan to purchase 5970 W 16th Street, St Louis Park, MN 55416.

Lance, thanks for getting back to me and I am sorry that underwriting strung us along for two months and after putting us under the impression that all she had to do was confirm with the borrowers employer the guaranteed amount of his pay. I have researched both the IRS guidelines and FHA 4155. There is no reason that his expenses cannot be treated as income. Ray’s employer did not like the tune of the Underwriter. She was accusatory as if the employer was defrauding the government. The IRS Topic 514 Employee Business Expenses does allow for the process Ray’s employer utilize. It is an “accountable plan. It states if your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your form W-2 as pay. You do not include the payment in your income, and you may not deduct any of the reimbursed amounts. To be an accountable plan, your employer’s reimbursement or allowance arrangement must include all three of the following rules.
1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period, and
3. You must return any excess reimbursement or allowance within a reasonable time period.
Ray’s expenses / incentive income comply with the above requirements and that is while his employer utilize the plan. For the underwriter to suggest that the income was not being reported anywhere and implying that there was some kind of tax fraud is unacceptable.
Now, if you go back to the FHA Handbook 4155. 1 4.E.5.b that states the amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the borrower’s gross income is where Raymond’s situation falls. I am requesting that your underwriting team please revisit my point of view and reconsider getting Raymond approved for this loan. Thank you and I look forward to working with you.
I do need to hear back from you soon as I will have to escalate this to the mortgage higher up.
Thank you and Raymond and I, Maureen Wilson look forward to hearing from you.
my email address is [email protected]