Closing Agreement Letter - Irs: Fill & Download for Free

There are many ways in which a thing can be true, and not all of them are equal.While ProPublica’s story is mostly true in a narrow sense, it’s also concerningly simplistic. It gives us a taste of the truth — enough to make us drunk with outrage. But what it doesn’t do is arm the reader to participate in the sort of discussion that might solve the real problems underneath.Compounding this, the dozens of clickshare re-writes of ProPublica’s story by other outlets have all been worse. What the ProPublica version lacked in breadth of address, the rest lack in depth (and also breadth).While we’re going to going to tackle those themes a bit more while unpacking the main elements of the tax story itself, just two bits of house-cleaning first:My main interest here is bias. Not political bias, mind you. More in the vein of what Jon Stewart suggested was the default bias of all mainstream media: “sensationalism, conflict, and laziness”.Some angles of this story get into murky territory, especially as it concerns legal recourse. I’ve done my best to be transparent about where I’m sure and where I’m speculating. As ever, I offer financial rewards for all corrections and meaningful improvements.Ok, on we go.Historical ContextBack in 1998, Congress passed the IRS Restructuring and Reform Act, which, among other things, spelled out one notable big-letter goal: “having 80% of Federal tax and information returns filed electronically by the year 2007”.Fast forward to 2002. The Bush II administration announced a new policy related to achieving that 80% goal: the creation of Free File Inc. (hereafter FFI) as part of the Free File Program (FFP).The basics:FFI (sometimes FFA in the press) is a consortium of a dozen major tax-prep companies.FFP is a deal that FFI made with the IRS wherein they would create software that allowed the bottom 60% (now 70%) of US earners to file their taxes electronically for free (no cost to the IRS or the filer).In exchange, the FFI demanded a non-compete agreement from the IRS. For as long as FFI was supplying these freebie filing options, the IRS couldn’t go and create their own.The FFP wasn’t law. Just a department policy predicated on a renewable contract between the IRS and the FFI. (This contract is referred to as a “memo of understanding”, or MOU.)Now, there are many ways of parsing this. On the one hand, free electronic filing for 60% of taxpayers was a win. Plus the government didn’t have to bother with creating this software from scratch. On the other hand, many FFI members had motivations beyond charity and civic pride. In exchange for their “donation”, they got to ensure the IRS wouldn’t cut their revenue streams by creating a better option of their own. (They knew that most filers would end up buying a paid product regardless of free options, which is something we’ll get to.)All said though, this being a negotiated contract meant it was mostly a win-win. The IRS got to focus elsewhere, and taxpayers got something useful. And in the event that the deal no longer made sense, the IRS was free to either renegotiate or try something new.What Happened This WeekThe House passed the Taxpayer First Act of 2019 this past Tuesday. Section 1102 of said bill began with this clause:The Secretary of the Treasury, or the Secretary’s delegate, shall continue to operate the IRS Free File Program as established by the Internal Revenue Service and published in the Federal Register on November 4, 2002 (67 Fed. Reg. 67247), including any subsequent agreements and governing rules established pursuant thereto.The force of this is pretty simple: the FFP (and the MOU underlying it) would graduate from department policy to federal law.But before we get into the implications of that, I want to contrast the above with a clause from a previous (unpassed) bill:The Secretary of the Treasury, or his delegate, may not establish, develop, sponsor, acquire, or make available individual income tax preparation software or electronic filing services that are offered under the IRS Free File program, except through the IRS Free File program, the Internal Revenue Service’s Taxpayer Assistance Centers, Tax Counseling for the Elderly, and volunteer income tax assistance (VITA) programs.Note the difference: in this second version, the non-compete aspect would have been part of the federal legislation itself (as opposed to it being a clause in an MOU referenced by the law, where that MOU could be updated to remove or modify or replace that clause). It also would have limited the IRS from sponsoring private partners outside the confines of the FFP. This is the kind of bill that lobbyists really wanted. What they got this week was a distinctly lesser win.Anyway, as for the MOU in question (now in its 8th version, having been renewed late last year), there are a few clauses in play here:In recognition of this commitment [of FFI members to offer free filing software to the bottom 70% of earners], the federal government has pledged to not enter the tax preparation software and e-filing services marketplace.But while this exchange is a classic quid pro quo, this isn’t to say the deal is entirely equal.Any unilateral changes imposed by the U.S. government on FFI whether by statute, regulation, or administrative action will result in an immediate re-evaluation of the decision to continue FFI, and could result in an immediate suspension of free services upon the decision of each Member.This is where things get really interesting, and where FFI lobbyists clearly earned their money. The new bill, while less onerous than previous attempts at codifying the MOU, does include one slippery sentence: it mandates that the government “shall continue to operate” the FFP.Here’s why this matters: if the IRS decides to revise the MOU to remove the non-compete angle, the FFI would have a powerful incentive to exercise the above clause. The presumption is that they’d then argue something to the effect of “the government’s unilateral decision forced our hand and now the FFP is basically untenable, and the law says that the government needs to keep the FFP alive”. (I’m not sure how successful this argument might be, but it certainly seems that the legislation was crafted to allow the FFI to make it.)But there’s one more thing from that MOU that represents a curveball:Should the IRS commit funding to offer Services for free to taxpayers, the IRS shall notify FFI immediately.This clause has been in the MOU since the first draft. It basically allows the FFI to stop offering the free services if the IRS begins their own. But this is somewhat in tension with the unilateral changes bit. If the IRS exercises an option that’s always been part of the MOU, does that weaken a potential claim by the FFI?(To be clear, I don’t know how this would play out in court. Different judges could rule differently. Though there are surely precedents I’m unaware of that might make certain outcomes more or less likely. What is clear though is that there would be non-trivial litigation risk for the IRS if they were to drop the non-compete and the FFI were to object.)Anyway, there’s more to the MOU that we need to look at, but I want to set up that discussion by reviewing a few other things first.There Must Be A Better Way!The crux of this week’s commentary has mostly been “man, it would be great if the US could be like other countries and have an option where the IRS just sends out a pre-filled postcard and all we need to do is verify and sign it”.The easy narrative here is that this system doesn’t exist solely because of the FFP (i.e., the companies that make up the FFI don’t want to lose revenues, and have thus thrown lots of lobbying dollars at Congress to keep the FFP in place, and that’s why we can’t have nice things).While there are other problems with this narrative, I think it’s worth getting into a fuller list of cautions that past studies have raised as it concerns the US pursuing such a program (pulling mostly from this 1996 GAO report, though leaving out all the arguments that have been obviated by tech advances):At the time, 55% of filers would have needed to make amendments to any pre-filled form the IRS could have come up with (or else would have needed to just do their own filing from scratch). While that number would be lower now, the complexities of US tax regimes (at both federal and state levels) combined with the backwater efficiency of most inter-governmental data-sharing systems would keep this number from being near as low as that of most other developed countries.Tax prep companies pay lots of tax on their profits, and employ lots of people who pay lots of tax on their wages. If you eliminate those jobs, the government takes in less money. Plus governments have to pay benefits to unemployed people until they find new work.Lots of US citizens don’t trust the IRS, which could mean that lots of pre-filled forms would be challenged, thus increasing the overall workload. In contrast, the selling point of “we’re going to help you pay the fewest dollars to the big bad government” is compelling to lots of Americans, and often solicits more trust (even if it shouldn’t).There was a fear at the time that people would be less likely to declare side income if their filing was pre-filled (I’m sure there’s relevant data from other countries who use this system — would love a link if any reader happens to know of quality research here).Employers are really bad at sending on forms in a timely way, making it hard for the IRS to gain the needed data to make correct calculations while also maintaining their current tax calendar.We can add two more things to this list:The IRS is intentionally under-funded (down nearly 20% this decade despite a host of new responsibilities). It’s hard to imagine either party giving them loads of money to institute new programs in the current climate, whatever their potential benefit. It’s just an electoral nightmare. Lobbyists and messaging consultants have done too effective a job at poisoning that particular well.US government agencies are generally bad at managing software projects. It isn’t at all clear that they’d get further developing their own system vs. forcing the FFI members to improve their existing offerings.Now, those arguments vary in power. I’m skeptical that even taken together they mean that the IRS shouldn’t try a large-scale pilot. But the last two are definitely non-trivial. Giving the IRS a larger budget is widely considered a non-starter, and changing political perception there would be a massive undertaking. But if you had to get them more money for either oversight or building their own program, oversight would be a whole lot cheaper, and may have a higher ROI.Bad Faith EffortsYou might be wondering: if the FFP has been around since 2002, why do only ~3 million people a year use it? (A number that’s been trending downward.)There are a handful of high-level answers here:Per the MOU (4.35), it’s actually the IRS’s responsibility to market the FFP. Doing this well would require them having a budget to do so (and them having the institutional competency to use that money well).Also per the MOU (4.15.4), FFI members are responsible to advertise the free service from their “Free File Landing Page”. They are not responsible to make this landing page easily accessible. In most cases, said pages are only reachable via the IRS’s little-known FFP program page.Most of the FFI’s FFP offerings suck (on purpose). The IRS has the right of review, but doesn’t use it very effectively. (As the FFI largely sees improving these offerings to be contrary to their financial interests, they’re only going to go as far as they’re pushed.)While some FFP offerings suck less, the FFI is dominated by Intuit (TurboTax) and H&R Block (i.e., the two players at least theoretically most opposed to improvements).Free options aren’t generally good at identifying all eligible deductions, leading most filers to opt for a paid service they perceive to be better at that.Filing taxes normally via TurboTax or a local outfit isn’t all that hard or expensive, and most taxpayers just aren’t bothered enough to seek an alternate solution.Of those factors, I want to focus on 3 and 4. To illustrate what bad faith means here, let’s look at how TurboTax goes about fulfilling their FFP obligations.Now, you might be thinking “well, that’s no so bad at all! — after all, the free option is clearly marked in an attractive way”.But then you click on that “simple tax returns” subhead and you’re greeted with a curious disclaimer:Hmm. Now why would these things not be covered? The obvious answer would be that artificial restrictions are useful for pushing customers to premium options. Pretty normal practice. But doesn’t the MOU forbid this type of upselling on FFP offerings?Trick question! The above offering has nothing to do with the FFP!TurboTax does have an FFP option, which does cover all the situations from the disclaimer. It’s just hidden. The only way you’d ever find it is if you came in via a link from the IRS’s FFP program page (or something written about it I guess). The fact that the two offerings share a confusingly similar name (“Free Edition” vs. “Free File”) is, ahem, a bit of poor luck. They say it isn’t their fault if consumers are confused, as it isn’t their job to educate them.And this is hardly the only kind of spirit-violating nonsense that FFI folks have gotten up to. Remember how the MOU demanded that the lowest 70% of earners all be given free options? Well, the MOU didn’t demand that each provider meet that goal individually — just collectively. The natural consequence? Each FFI provider has seemingly arbitrary restrictions on location and age/income ranges. While you’re guaranteed (if under the income cap) that one of them will work for you, the same one might not work for your sibling or next-door neighbor. It may not even work for you two years in a row! It’s complicated enough that the IRS had to develop a lookup tool that requires you to complete a survey to match you with the right offering. Friction, friction, friction.Why Governments Suck, Part IIf you read through the MOU, you might find yourself surprised at some of the clauses.4.36.3 - IRS and FFI mutually agree to support and promote Free File as an “Innovation Lab” to test, pilot, and offer capabilities to simplify taxpayer compliance, such as data importation offered by industry as described herein, and such as IRS’s Application Programming Interface (API) projects […]Yep, you read that right: the FFI actually has a mandate to create the sort of tax-filing experience we all dream of. (There’s a whole section on this.) On the balance, the MOU is honestly pretty taxpayer-friendly. The problem isn’t in the text — it’s in the fact that the US government is terrible at private-sector oversight, rendering most of these deals somewhere between one-sided and meaningless.This is why all those battles that Roger and Paul and Grover and Newt and Ralph fought in the 80s/90s mattered. They weren’t conservatives fighting against the encroachment of progressive values or the nanny-state. They were power-brokers looking to get paid by corporations keen to reduce oversight to something of a farce. (And they definitely had their allies on the left in this effort.) Now, sure, reasonable people can disagree on how much oversight the market needs. That’s why we have a democratic system that necessitates healthy compromises. Good legislation should certainly aim for balance, and so on. But what those men did was use the “government vs. markets” debate, not to shift the compromise, but to obscure what they were really doing: making sure that whatever compromises Congress reached would be toothless anyhow.The reality here is that the MOU itself is largely fine, as is the new law. And the litigation risk of backing out of the non-compete, however severe, is mostly a red herring. The IRS is still free to help other competitors (like Credit Karma) enhance their free services, and there’s no reason that FFI offerings couldn’t be made to be as good or better than whatever the IRS could come up with themselves. That the current options suck isn’t about who is building the software. It’s about the IRS having no real resources to either enforce/sweeten the MOU or market the FFP.And that, in turn, is a problem with public perception. The US can easily afford to properly fund the IRS (it would actually be a net savings on a longer timeline). But elected representatives are terrified of trying, largely thanks to the efforts of the Grovers of this world — along with a little help from the media.Why Governments Suck, Part IIIt isn’t a new observation that good governance requires an informed public. This has been a maxim since the first Greek experiments with democracy. Literacy and engagement are the central pillars of any nation worth living in.So why is the press doing such a poor job informing the public in a way likely to arm them with the data and context required to engage well?Let’s start with the ProPublica piece that set off this whole dialogue:Congress Is About to Ban the Government From Offering Free Online Tax Filing. Thank TurboTaxSetting aside the misleading implications of the headline as worded, let’s look at the article’s first paragraph:Just in time for Tax Day, the for-profit tax preparation industry is about to realize one of its long-sought goals. Congressional Democrats and Republicans are moving to permanently bar the IRS from creating a free electronic tax filing system.Note those words: “permanently bar”.Remember that Stewart line from the beginning about “sensationalism, conflict, and laziness”? Keep that in mind as you parse what exactly “permanently bar” might mean. It isn’t a term of art. Congress has no power to ban anything forever. That’s not how the law works. The closest we could get is a constitutional amendment, but even those can be re-written and re-interpreted. Laws, by their nature, are transitory things.The real focus of this new legislation isn’t permanence, but difficulty. The FFI hardly expects the status quo to last another 17 years, much less indefinitely. They just expect that litigation risk (and two-branch support) will act as a speed bump on change. Their monopoly would still be written in pencil, but the erasers would be just that little bit extra harder to come by, which would make them happy.Now, you might object that I’m being over-sensitive to the meaning of words here, and that ProPublica’s take wasn’t all that bad. And this is where we have to get a little philosophical. Some believe that every journalist’s responsibility is something to the effect of “collect some facts, avoid outright mistakes, and work with an editor to make your story marketable”. But this to me is the equivalent of requiring them to “tell the truth and nothing but the truth” while leaving out the bit about “the whole truth” as either unimportant or impractical. The story that ProPublica told was true, but it agitated more than it informed. The FFI likely read it and said “well, this will make this week suck, but the outrage isn’t well-directed to any end that represents a real obstacle to us, so, hey, whatever”.Look, good journalism is hard. I get that. And there’s certainly value to communicating key facts quickly. Not every news bulletin can wait on an exhaustive search for whatever we might consider a realist approximation of “the whole truth”. But it seems undeniable to me that the current model is broken. And this is nowhere more evident than in how primary reporting is reprocessed by secondary publishers in their quest for clickshare.Say you thought “permanently bar” was wrong but not very wrong. How do you feel about the first sentence of TechCrunch’s repackage?Thanks to pressure from tax preparation industry, Congress is getting ready to ban the IRS from ever building a free electronic tax filing system.Does TechCrunch say “ever” here if ProPublica didn’t use “permanently” first? If I was a casual reader, I’d assume that “ever” implied some real finality, like a door being shut that couldn’t be re-opened. (Where the reality here is that this particular door can be sprung with precisely the same force with which it was closed.)In the same vein, consider this follow-on by Popular Mechanics:Filing Your Taxes Could Be Way Easier, But Congress and Tax Companies Are Conniving To Make Sure It Stays TerribleConniving! Reminds me of that old saw about how one shouldn’t ascribe to malice what’s better explained by incompetence (or, in this case, inadequate resources).Anyway, as to the article itself:Tucked away in section 1102 of the bill, which relates to the IRS Free File Program that ensures fee-free filing for people under a certain income threshold, is language that subtly prevents the IRS for developing its own system by mandating that the agency continue to work with the private sector in this endeavor. In other words, the legislation locks us all into the status quo.I credit ProPublica with at least this: however narrow their perspective was, at least they did their homework. Their bias was more toward sensationalism and conflict than laziness. Popular Mechanics (and dozens of others) went for the full trifecta, in a much more brazen way.As a non-exhaustive list of problems here:While, yes, filing your taxes could be “way easier”, shifting the software burden to the IRS would be no guarantee of making this so.Section 1102 was the 3rd of 47 sections. If their goal was to hide it in the stack, the crafters did a poor job.There’s a deep confusion here between the bill and the MOU.The actual non-compete language is the opposite of subtle.This is like the game of Telephone. Most secondary publishers do near-zero research and just repackage the primary article, leaving the signal to degrade with each step.And then we have Twitter.Who says there is no common ground in politics?Democrats and Republicans in the House just unanimously passed a bill that makes it illegal for the IRS to create a system to let Americans file their taxes for free online— Judd Legum (@JuddLegum) April 10, 2019This system already exists! It’s called the FFP! That the IRS can’t create their own competing system to the one they already manage is a much narrower issue.(Also, for the record, passing a bill by acclimation isn’t the same as passing one via a unanimous vote.)[EDIT: 05/01/21: I realize one counter-argument here is “ah but this system is limited to 70% of the population”. And that’s true so far as it goes. But the top 30%of earners generally have far more complicated returns, almost all use accountants, and largely wouldn’t be using a free file service anyway.]It's hard to find a clearer example of Congress sabotaging the public good than a bill -- lobbied for by TurboTax -- prohibiting the Internal Revenue Service from developing a free online system for filing your taxes.https://t.co/4HuIZc9ZKO— Justin Wolfers (@JustinWolfers) April 10, 2019Ditto to above. This system already exists, and was developed under the auspices of the IRS.Also, the linked NYT piece (from their editorial board) includes this gem: “Instead of barring the I.R.S. from making April a little less miserable, why isn’t Congress requiring the I.R.S. to create a free tax filing website?”The IRS already mandated the creation of several such websites! The assumption that the IRS would create a better one on their own is plausible, but (really) far from certain when you look at the history of government software projects.Two facts:1. H&R Block and the makers of TurboTax spent $6.6 million lobbying last year. They want to ban the IRS from offering its own free, simple tax filing service.2. Congress is about to pass a law doing exactly that. https://t.co/giatnNh5mD— Eric Umansky (@ericuman) April 9, 2019The IRS isn’t getting “banned” from anything. They voluntarily signed a non-compete 17 years ago, which they renewed less than six months ago. (And this is from a ProPublica editor!)The extent to which all Americans suffer an annual cost in time and money to protect the monopolies of TurboTax and H&R Block is astounding. Is there any issue where Congress is more out of step with citizen desires? https://t.co/GIRijGpS9Y— Garrett M. Graff (@vermontgmg) April 9, 2019Like, I get the desire for simpler taxes. But is $40 and 15 minutes really “suffering”? (And, again, for the lowest 70% of earners, they don’t even have to shell out the $40 if they don’t want to. Though I guess you could say that using existing FFP sites is a form of suffering, if in an excessively first-world sense.)Congress can’t muster the political will to eliminate the carried interest tax break for private equity titans, but it can get together to prevent free tax preparation for others: https://t.co/3pEfW8EPnF— Matt Taibbi (@mtaibbi) April 10, 2019No free preparation! Except for 70% of you! And a handful of other special classes!Anyway, I could go on. But the point is that if the goal is to get voters to hold politicians accountable, it would certainly help if the voters knew what was happening, and why, and where the real problems are.It’s difficult to see how all the current coverage supports such a cause.More Adventures in Water-MuddyingConsider this quote (from the original ProPublica piece, but re-used in several secondary articles):“This could be a disaster. It could be the final nail in the coffin of the idea of the IRS ever being able to create its own program,” said Mandi Matlock, a tax attorney who does work for the National Consumer Law Center.This is, uh, pretty hyperbolic. Is there any justification for it? Does it aid clarity? Or does it just lend to the ever-marketable dynamics of sensationalism and conflict?Also consider this irreconcilable set of quotes from ProPublica’s sequel (published after lawmakers reacted to the first one).The IRS chief counsel confirmed to his office that the Taxpayer First Act does not bar the agency from implementing a direct-file program. … “My staff pushed back on a long-standing policy that blocks the IRS from competing with private tax preparation companies […]”vs.“Senate Republicans fit in some bitter pills and some problematic provisions,” said [Rep Katie Hill], who supported the bill as a whole, speaking on the House floor. “One of these is a piece that came to my attention today — which the corporate tax lobby has spent years and millions of dollars to get — which would bar the IRS from creating a simple, free filing system that would compete with their own.”I find this stuff infuriating, on three levels:Those who want to get quoted have biases and motives. Readers aren’t equipped to unpack those. Journalists need to do more than just “report the controversy”. Maybe that works for an AP news bulletin where speed is of the essence. But who is doing the work of coming in after and deconstructing for the reader why each party might have said what and how their statements relate to their bios?Far too many journalists (I’m not sure if this includes ProPublica) rely on services like HARO, where the experts are unknowns who respond to a call for a quote (vs. people with whom the journalist has an established relationship based on a keen understanding of competencies and incentives and likely spin). I know personally how low the bar is to getting quoted via HARO. I was never asked once to verify my identity or defend my position. What I said was just copied-and-pasted into a piece on the strength of a one-sentence self-supplied credential and my email address.Just because a politician has a quote doesn’t mean you should print it. It’s pretty clear that most who’ve commented on this legislation so far had/have (at best) a vague sense of what it contains, much less all the MOUs and external docs referenced in the bill. This isn’t uncommon. Only so many politicians have the right staff (and even then there are hard limits on scope and priorities). Journalists ought to push back more to ensure they aren’t just printing “um, I don’t reaaally know, but here’s my strong opinion that I’m told will play well to my base” quotes (or at least journalists need to carefully qualify those quotes when printing them).The Path ForwardI’ve written a lot over the past year about the failures of modern journalism — especially the hot-take/rapid-response/clickshare machine. There are things we can do to fix it, including some simple adjustments that could go a long way.In the absence of those changes, corporations like Intuit and H&R Block are going to have a field day. Their lobbyists will do what they’re paid very well to do, and our selective and ever-moving outrage will do nothing to solve the underlying problems. The MOU, whether law or policy, will continue to be enforced so poorly as to be one-sided, and tax innovation will be forever three or five years away.And so on and so on we’ll go, never to actually get anywhere, until we eventually decide that enough is enough, that the current model belongs in the dustbin of history, and that the time to make these changes is now.Note #1: I’m generally a fan of ProPublica. I thought their rundown last year was excellent, which has been true of a lot of their past coverage on this issue. I can’t really account for why this one missed the mark in relative terms.Note #2: An open question for any lawyer reading: could taxpayers sue the IRS for failing to meet the requirements set out in section 4.35 of the MOU (a promise to make “consistent, good faith efforts” to market the FFP)?EDITS [05/01/21]:Coming back to this two years later, I’ve made some fresh eyes edits. See log. The only thing that wasn’t typos or formatting or minor caveating was adding a clarification that the MOU could still have been modified by the IRS (as opposed to the law itself, which would have required help from Congress). While it’s true that the IRS would need the FFI to agree to any such revisions, they have a unilateral termination clause for leverage (Article 10.2). The bill just said they had to continue operating the program in keeping with the original outline and any subsequent agreements. Well the reigning agreement (as ProPublica acknowledged) says the IRS can unilaterally dissolve the MOU with a year’s notice. (I’m sure the FFI would threaten to sue if the IRS went that route. But the point here again is introducing friction to test the government’s resolve. Should the government have sufficient resolve, they have absurd leverage to win that fight. So it was hardly some adamantium handcuff situation.)There’s a way in which ProPublica’s reporting worked. The offending clause was taken out of the bill as passed by the Senate. But I’m still torn about their coverage (which is fresh in mind as I’m currently working on another story about them). On one hand, they did quality work directing attention towards a somewhat dodgy thing. And the uproar they whipped up stopped that somewhat dodgy thing from happening. Even so, the basic underlying situation hasn’t actually changed. Few voters have a clearer idea of what’s really in the way of improvements to the FFP (i.e., IRS executive virility in managing the existing MOU), far too many were led to believe that the law would have been irreversible, and most are still in the fantasyland of imagining that were it not for Intuit the IRS would somehow have the sort of system you see in countries like Sweden (when the real obstacles there are all orthogonal to FFP). While I still see them as the gold standard of journalism, that means less than it should.(I’d be curious to see how many more Americans used Free File in 2020 on the back of all this media attention. If I ever find an answer, I’ll come back to link it. As a big uptick vs. the prior trendline would be to their credit.)

A company thinking about raising its first round of financing should get its legal ducks in a row before accepting term sheets; fundraising is time-consuming and the Company should focus its efforts on investor meetings and not clean-up items. Things generally move pretty quickly after a term sheet is signed, so, to speed up the time between signing a term sheet and closing, the Company should have all diligence items ready before fundraising.Once a term sheet is finalized and signed, the investor will send the company a due diligence request list. There are several items an investor will request in connection with its diligence review, including documentation relating to:Capitalization;Intellectual property;Commercial agreements;Securities filings; andCorporate governance.As such, the company should ensure it has the following items ready to provide to investors once the term sheet is signed:Option and common stock grant documentation for each person/entity on the Company’s stockholders’ ledger;Confidential Information and Inventions Assignment Agreements for each founder/consultant/employee/advisor and NDAs;Proof that the founders, and any other person with stock subject to vesting, has filed an 83(b) election with the IRS;All consents and minutes of the Board and stockholders;Copies of the Company’s equity incentive plan and related documentsAny material vendor or customer agreements;Copies of all securities filings;Office lease(s);Corporate documents, such as the Company’s certificate of incorporation, bylaws, foreign qualifications, and DBAs; andFinancial statements.Additionally, the company will want to make sure any funds the founders have loaned to the company are properly documented and approved, and key employees have entered into employment agreements or offer letters. Of course, the company will also want to make sure it has a company bank account and is not using a personal bank account. To hear more advice on your first equity fundraise, read this blog by Justin Kan, Atrium’s CEO.All content presented herein is for informational purposes only. Nothing should be construed as legal advice. Transmission and receipt of this information is not intended to create and does not constitute, an attorney-client relationship with Atrium LLP. There is no expectation of attorney-client privilege or confidentiality of anything you may communicate to us in this forum. Do not act upon any information presented without seeking professional counsel.

It’s important for home buyers to understand that a mortgage commitment letter in NYC does not guarantee that the bank will fund your loan.As you will see from the NYC mortgage commitment letter sample below, there are many contingencies in place for the bank to revoke its loan commitment to you. If you’re about to submit an offer and deciding whether to waive the mortgage contingency, it’s important to understand what a mortgage commitment letter entails and how much assurance a loan commitment offers you in the first place.What does a NYC mortgage commitment letter sample look like?This is an example of a standard mortgage loan commitment letter that would be issued to a New York City condo or co-op apartment buyer. There are additional sections in this NYC mortgage commitment letter sample you should review such as Commitment Conditions.MORTGAGE LOAN COMMITMENTBorrower Name(s):Borrower Mailing Address:Lender:Property Address:Type of Property: [Condo, Co-op, etc.]Commitment Expiration Date:Date:It is a pleasure to notify you that your application for a mortgage loan has been approved subject to the following matters set forth below and on pages 2 and 3.INSTRUCTIONSPlease sign, date and return Lender’s copy of this Commitment, along with any required fees and items requested, to the Lender at the following address, within 15 days of the date hereof, or at the option of Lender, this Commitment shall become null and void. Should you have any questions, please contact:This approval is not a final commitment. Due to the fact that interest rates are subject to change without notice, your approved payment and loan amount may change if interest rates increase or decrease.EFFECTIVE DATE AND COMMITMENT FEEThis commitment will become effective upon compliance with the terms herein and, if applicable, the receipt of your check in the amount of any non-refundable commitment fee (“stand-by fee”). It is understood and agreed that if this mortgage loan is not settled in accordance with the terms and conditions of this commitment, the Lender shall retain this fee as earned charges for the origination and approval of this loan.AMOUNTS, TERMS AND FEESAmount of Loan $[Amount]Initial (Contract) Interest Rate [Rate]%Loan Term [Number] monthsAmortization TypeBalloon Term (if applicable) [X] monthsLoan TypeLien Position 1st LienPAYMENT (P&I)Your initial interest only principal and interest (P&I) amount is $[Amount]. This amount does not include any escrowed amounts and may change if there is a change in loan terms.ESCROW[ X ] An Escrow Account is not required.[ ] An Escrow Account is required.Even if an Escrow (Impound) Account is not required at time of settlement, subject to the terms of your specific loan documents, the Lender may set up and require an Account should the taxes or insurance on the subject property ever become delinquent.EVIDENCE OF TITLEThe Evidence of Title is to be provided to the Lender and must indicate no liens, encumbrances, or any adverse covenants or conditions to title unless approved by Lender. The Evidence of Title must be issued from a firm or source, and in a form, acceptable to Lender. Borrower will be charged for the cost of providing such title and the cost of recording documents, all of which will be ordered by Lender unless requested otherwise.CANCELLATIONThe Lender reserves the right to terminate this commitment prior to the settlement of the loan in the event of an adverse change in your personal or financial status, or if the improvements on the property are damaged by fire or other casualty.REQUIRED ITEMS OR CONDITIONSAll Items Listed on the Commitment Conditions Addendum Apply.THE FOLLOWING CONDITIONS MAY APPLY TO YOUR LOAN DEPENDING ON THE LOAN TYPE AND TERMS.BALLOON MATURITYA balloon loan matures before the loan is fully amortized. The balance of the loan will be due in a lump sum payment at maturity.FIRE AND EXTENDED COVERAGE INSURANCEPrior to settlement, we will require an original insurance policy and/or binder containing fire and extended coverage (i.e., windstorm, hurricane, hail damages, or any other perils that are normally included under an extended coverage endorsement) insurance in an amount equal to the lesser of 100% of the insurable value of the improvements, or the unpaid principal balance of the mortgage as long as it equals the minimum amount (80% of the insurable value of improvements) required to compensate for damage or loss on a replacement cost basis through a company acceptable to the Lender, and a receipt showing premiums paid in advance for one year. The insurance policy shall also contain a standard mortgage clause in favor of Lender. We cannot require you to obtain a policy which exceeds the guaranteed replacement cost of the improvements securing the loan.If the property is new construction and you are not able to occupy the property immediately after closing, you will be required to furnish an original fire/hazard insurance policy or binder, including a Builder’s Risk Rider. If this is a renovation of an existing dwelling that will remain occupied, a Builder’s Risk Rider is not necessary.GOVERNMENT INSURED LOANSLoan Commitments issued for these types of mortgage loans, including, but not limited to FmHA, RHS, FHA, and VA, are subject to all the terms and conditions of the Agency’s commitment, or the VA certificate of reasonable value, as well as the rules, and regulations, and all applicable requirements of the Farmers Home Administration, Rural Housing Service, Department of Housing and Urban Development, the Department of Veterans Affairs, and/or other state or municipal authority.FLOOD INSURANCEBy signing and accepting this commitment, you acknowledge that if the property securing this loan is in an area identified as having a special flood hazard you agree to these insurance requirements.Our policy, in order to best protect collateral interest, is to adhere to the more common industry practice of requiring flood coverage for the lesser of: the full 100% Replacement Cost Value or the maximum amount of insurance available under NFIP for the particular type of building; currently $250,000 per residential dwelling/condominium unit. A copy of the declaration page or application signed by the agent, along with proof premium has been paid, is required prior to closing.Flood insurance is mandatory now or in the future if this property has been or will be determined to be in an area which has a special flood hazard. Federal Law requires that flood insurance, available through any agent, must cover the lowest of: the outstanding principal balance of the loan[s]; the maximum amount of coverage allowed for the type of building under NFIP or the full replacement cost value of the building or contents securing the loan.TAX AND INSURANCE PAYMENTSMonthly deposits and initial deposits as determined by Lender are required to cover the payment of estimated annual real estate taxes, special assessments and, if applicable, FHA or Private Mortgage Insurance Premiums. Lender may also require additional deposits for hazard or other insurance if required for this loan. Such deposits are to be placed in a separate escrow or impound account.SPECIAL ASSESSMENTSIf required, all unpaid and future special assessment installments must be paid in full prior to, or at time of settlement.DOCUMENTATIONThe mortgage or deed of trust, note and other pertinent loan documents will be provided by Lender and must be signed by all applicants that are to be contractually liable under this obligation. Further, the mortgage or deed of trust must be signed by any non-applicant spouses if their signature is required under state law to create a valid lien, pass clear title, or waive unclear rights to property. Note: Samples of loan documents are available upon request.ADDITIONAL CONDITIONS FOR CONSTRUCTION LOANS.CONSTRUCTION LOANS: ONE PAYOUT AND MULTIPLE PAYOUTImprovements are to be built in a good and workman-like manner in strict accordance with plans and specifications furnished Lender and in compliance with applicable building codes. After completion, said improvements shall be approved by a representative of Lender and an occupancy permit shall be issued by local municipality. Any changes, whether they be additions, deletions, or alterations, of the plans and specifications, must be approved in writing by Lender in order that this loan commitment remain in effect.CONSTRUCTION LOANS: MULTIPLE PAYOUTEvidence must be submitted that the net proceeds of our loan are sufficient to complete the construction of the building, free and clear of all claims of Mechanic’s Liens for labor and material. All disbursements will be made upon the order of the borrower upon presentment of proper waivers of lien, subject to compliance inspections by the Department of Veterans Affairs, the Federal Housing Administration, or Lender, not to exceed 80% of the value of the work done. The remaining funds will be held back until the certificate of completion and/or occupancy certificate is issued.I (WE) accept the terms and Conditions of this Commitment and will notify Lender if there are any changes to the information provided on the application before the closing of the loan.Borrower DateCOMMITMENT ISSUED ON BEHALF OF LENDER BY:Take special note of the cancellation clause listed above. If you lose your job or suffer some other financial setback, the bank will have cause to terminate your loan commitment!What are some typical commitment conditions in a NYC mortgage commitment letter sample?This is an example of a some typical commitment conditions in a NYC mortgage commitment letter sample. Note the long check-list of tasks that must be completed in order for the lender’s commitment to be valid.COMMITMENT CONDITIONS(Attachment to Mortgage Loan Commitment)Borrower: The Closing Disclosure will be provided to you in advance of your closing indicating your loan terms and is followed by a government mandated waiting period before the actual closing occurs. Receipt of the Closing Disclosure does not indicate all loan conditions have been satisfied which must occur prior to closing. Changes of any kind that occur after the final Closing Disclosure has been delivered to you may result in an additional waiting period prior to closing.Borrower: This loan is also subject to all other lender specified conditions and must comply with all applicable federal, state, and local laws and regulations.Lender: Verification from the Lender’s Closing Agent / Attorney that a Recognition Agreement has been executed by the the Cooperative Board and received by the Closing Agent/AttorneyLender: Title to have Recorded UCC1 lien search at time of closingLender: Recognition agreements and stock certificate required at time of closingLender: This loan is approved for a maximum interest rate of — [ ]% (qualifying pmt)Lender: If the loan does not close by the expiration date of the credit documents which includes verification of employment, assets and credit, re-verification will be required. To avoid re-verification the loan must close by: [Date] (rate)Lender: Obtain a completed and signed Form 4506-T (written permission to request tax returns from the IRS) for all borrowers at and before closing. — ** rcvd prior to closing **Lender: Closing agent to verify borrower(s) identityLender: Fully executed and signed Social Security Administration release (form OMB #0960–0760)Lender: Loan was approved based on the following parameters: Debt to Income Ratio not to exceed [ ]%; Total Reserves required for Transaction are $[Amount] or 12mos (subject to change) plus closing cost & prepays of $[Amount] (subject to change). Required Liquid Funds for transaction can be no less than $[Amount]. If any of these parameters change, as required by product guidelines, the loan will be subject to re-underwriting.Lender: If the loan does not close by the expiration date of the following documents, re-verification will be required:Appraisal: [Date] Verbal VOE: [Date] Rate: [Date] Lien Search: [Date] Co-Op Approval: [Date]Lender: No subordinate financing allowedLender: Seller paid closing cost may not exceed actual costs, the maximum amount that can be paid is — $[Amount]Lender: No cash out to borrower(s) at closingNote that this hypothetical lender does not allow any subordinate financing. That means you won’t be able to take out a 2nd lien home equity line of credit at a later time. Please also note that if your purchase doesn’t close in time, the lender may need to re-do the underwriting process.Sample Mortgage Commitment Letter InstructionsCONGRATULATIONS!Your application for a [Bank Name] Co-op Loan has just been approved. Enclosed you will find a commitment letter which provides you with specific details regarding your loan approval. We urge you to read it carefully as it contains important information on the financing terms and the documentation that is required in order to close your loan.WHAT ARE THE NEXT STEPS?You must sign the commitment and return it to us within ten (10) days of the commitment or before the expiration date, whichever is sooner with any fees specified. Please note that this commitment letter contains two critical dates. If you elected to lock in your interest rate and points there is a rate expiration date. If you do not close your loan on or before the rate expiration date, the terms and conditions will change.In addition, there is credit document expiration date. If you do not close your loan on before this date you will need to satisfactorily update certain credit documents in order for the terms and conditions of this commitment letter to apply. If your rate and points have not been locked, the rate expiration date will be established once you elect to lock in your rate. You must lock in your rate at least five business days prior to loan closing.Please read the commitment letter and riders carefully, as they contain conditions that must be satisfied prior to your loan closing. It is incumbent upon you to make sure that we are in receipt of all items listed. These items must be reviewed and approved at least three (3) days prior to loan closing. Again we must emphasize that you cannot close your loan unless all these items have been satisfied.We have notified the closing attorney for [Bank Name] of this loan transaction.Arrangement and instructions for closing your loan should be obtained by contacting the [Bank Name] attorney named in your commitment letter. A loan closing can be scheduled shortly after all necessary documents have been received by [Bank Name].The [Bank Name] attorney will be able to provide you with specific information regarding the following:-Closing Date-Closing Location-Prepaid Interest and Escrow Funds-Co-op Lien Search Requirements-Survey Coverage Requirements-Insurance Requirements (Hazard/Flood/Condominium/Co-op)We encourage you to have your attorney contact the [Bank Name] closing attorney to review the requirements. This should help to ensure that your closing goes smoothly.Thank you for choosing [Bank Name] for your financing needs. We are delighted to have you as a client.What are sample closing conditions in NYC?Dear [Borrower],We have received today from [Bank Name] a copy of a commitment letter for a co-op loan and will represent [Bank Name] at the closing. Please be advised that we cannot schedule a closing unless we receive confirmation that the conditions required by [Bank Name], prior to closing, have been satisfied and the conditions required at closing will be obtainable and brought to the loan closing.Enclosed with this letter you will find three copies of Recognition Agreements. The Recognition Agreement must be delivered to and executed by an Officer of the Cooperative Corporation. The fully executed Recognition Agreement must be delivered to our office prior to loan closing or it must be brought to loan closing. We will be unable to close a co-op loan without the original executed Recognition Agreement with the corporate seal.Enclosed with this letter you will find a Uniform Commercial Code Authorization Form. This document must be signed by each person who will be on title and promptly returned to our office. This document is necessary for [Bank Name], to obtain a security interest in the cooperative. Upon our receipt and/or confirmation of certain information i.e. section/block/lot numbers of the building same will be inserted in the financing statement prior to filing. Please be sure to note that the executed Uniform Commercial Code Authorization Form and the check required by paragraph 3 below must be remitted to our attention at the time you accept your commitment letter to a assure a timely closing.To ensure that [Bank Name] has a proper security interest, a Cooperative search of the appropriate records will be conducted solely for [Bank Name]’s benefit. The search will be ordered by our firm and will be reviewed and approved by our office prior to loan closing. Payment of the lien search must be remitted to our office at the time you send back the UCC-1 Authorization form. The cost of the search is $275.00 and the filing fee for the UCC-1 is $100.00. Please remit a check for $375.00 made payable to [Name] for the lien search and the recording of the financing statement.Unless paid prior to loan closing, all charges and fees due to [Bank Name] must be paid from the loan proceeds. If you call our office the day before loan closing, we will advise you of the exact amount being deducted from loan proceeds.The commitment letter has two expiration dates; one is the Commitment Expiration and one is the Rate Lock Expiration. The loan must close and funds must be disbursed on or before the earlier of the Commitment Expiration or the Lock-In Expiration. In the event the loan is a refinance transaction and it is subject to the required three (3) business-day right of recission it must close four (4) business days prior to the expiration of any applicable rate lock agreement.Please note that a closing cannot be scheduled until the following items have been completed:– We have been advised by [Bank Name] that all commitment conditions have been satisfied.– The U.C.C. -1 financing statement has been filed.– The co-op search has been reviewed and approved– We have a copy of the proposed Stock Certificate and the first page of the Proprietary Lease. At closing, the original Stock Certificate and Proprietary Lease must be delivered to [Bank Name] Closing Attorney.– We must be in receipt prior to or at loan closing of a blanket insurance policy for the co-op evidencing sufficient dwelling coverage.[Bank Name] requires at least two (2) business days to schedule a loan closing.We are committed to providing you with the highest level of customer service. If you should have any questions please feel free to call us at [Phone Number].Content courtesy of https://www.hauseit.com/nyc-mortgage-commitment-letter-sample/Disclosure: Hauseit and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.