Freddie Mac Single-Family Seller/Servicer Guide 5304.2 — Automated income assessment using tax data for self-employed income

This section contains: ■ Overview ■ Eligible self-employed income ■ Underwriting requirements ■ Data submission requirements ■ Representation and warranty relief eligibility and documentation requirements

(a) Overview Asset and income modeler (AIM) automated income assessment using tax data provides Sellers with the option to use certain Systems (as defined in Section 2401.1(b)) to determine whether the Seller is eligible for relief from enforcement of certain representations and warranties related to the Borrower’s self-employed income. The Seller must obtain the Borrower’s tax data and submit all required data and information to the applicable System. Based on the data submitted, the System will assess for representation and warranty relief eligibility and return the results of the assessment. The method to calculate income assessed by the applicable System may differ from income calculated using the methods described in Section 5304.1. Representation and warranty relief eligibility is contingent on the Seller’s compliance with the requirements of this section. References in this section to “service provider” mean a third-party service provider designated by Freddie Mac. (i) Tax returns uploaded to a service provider If the Seller obtains federal income tax returns from the Borrower, the Seller will upload the tax returns to a service provider, which will produce a report (“Income Calculation Report”) consisting of data extracted from the Borrower’s tax returns. The Seller may also request from the Internal Revenue Service (IRS), via the service provider, a tax transcript of the Borrower’s federal individual income tax return(s). If both tax returns and tax transcripts are obtained, Loan Product Advisor® will compare data from the Borrower’s tax return to data from the tax transcript for assessment of tax return data representation and warranty relief eligibility and return the results of the assessment on the Feedback Certificate. (ii) Tax transcripts obtained from a service provider Alternatively, the Seller may request from the IRS, via a service provider, a tax transcript of the Borrower’s federal individual income tax return(s). Loan Product Advisor will retrieve the tax transcript data from the service provider and assess for income and data representation and warranty relief eligibility and return the results of the assessment on the Feedback Certificate. (iii) Freddie Mac Income Calculator using tax return or tax transcript data When data from the Borrower’s federal individual income tax returns or tax transcripts is submitted into the Freddie Mac Income Calculator, a Freddie Mac Income Calculator Certificate is produced that details the results of the Freddie Mac Income Calculator submission, including the calculated income and representation and warranty relief eligibility for income and data, if applicable.

(b) Eligible self-employed income (i) Tax return Self-employed income is an eligible income type for an automated assessment using tax return data if it is derived from the following business structures: ■ Sole proprietorships reported on IRS Schedule C ■ S corporations reported on IRS Form 1120S (including compensation of officers reported on IRS Form W-2), IRS Form 8825 and IRS Schedule K-1 (Form 1120S) ■ Partnerships reported on IRS Form 1065, IRS Form 8825 and IRS Schedule K-1 (Form 1065) (ii) Tax transcript Self-employed income is an eligible income type for an automated assessment using tax transcript data when it is derived from a sole proprietorship and reported on IRS Schedule C. Note: If other self-employed income is reflected on other tax schedules (e.g., Schedule E or Schedule F), the Mortgage is not eligible for an automated assessment using tax transcripts.

(c) Underwriting requirements (i) General underwriting requirements The Borrower must have been self-employed and received income from the same eligible income source (i.e., business) on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or Form 91, Income Calculations (or a similar alternative form as described in Section 5304.1) for the most recent two years. If the Borrower’s business has been in existence for less than five years or the Borrower has owned the business for less than five years, the Borrower’s federal income tax returns or tax transcripts must reflect at least two years of receipt of income and/or losses from the business. Income reported on the business tax returns but not on personal tax returns must not be considered as stable monthly income. The Seller must have no knowledge, information or documentation that contradicts an expectation that the income will continue for at least the next three years. (ii) Federal income tax return and tax transcript requirements The tax returns or tax transcripts used in the automated income assessment must be the Borrower’s individual and business, if applicable, U.S. federal income tax return(s) that were most recently filed with the IRS. Sellers are encouraged to always confirm with the Borrower that the tax return(s) or tax transcripts provided are the most recent filed with the IRS. The individual tax return year most recently filed with the IRS must correspond to the business tax return year most recently filed with the IRS for all businesses (e.g., when the most recently filed individual tax return year is 2024, the most recently filed business tax return year must also be 2024). The income and/or loss reflected in the federal income tax returns or tax transcripts must be reported for the same business on the same tax form structure (e.g., the business cannot be reported as a sole proprietorship and then converted to a partnership). The tax returns must not be any of the following: ■ Filed on a fiscal year basis ■ Handwritten ■ An amended return ■ From a U.S. Territory If the Borrower has amended their tax returns, then tax transcripts are not acceptable for assessment through the applicable System. If using tax transcript(s), the assessment requires the most recent calendar year; a tax extension is not allowed. (iii) Inconsistent or contradictory information The Seller is responsible for investigating and resolving any inconsistent or contradictory information contained in the Income Calculation Report, the Freddie Mac Income Calculator Certificate, Form 91 (or a similar alternative form), federal income tax returns, tax transcripts and/or the Mortgage file. For example: ■ If the Seller determines that a business from which positive Borrower income is calculated is no longer in operation, the Seller must exclude it from the qualifying income, or ■ If the Mortgage receives a tax return data representation and warranty relief result of “Not Eligible,” as described in Section 5304.2(e)(iii) below, due to inconsistencies between the tax transcript returned by the IRS via the service provider and the tax return(s) uploaded to the service provider, the Seller is required to resolve the discrepancy If the Seller finds discrepancies, it must update the information in the applicable System and/or the Income Calculation Report and resubmit the data as necessary. Note: For Mortgages that receive a tax return data representation and warranty relief result of “Eligible” as described in Section 5304.2(e)(iii) below, Loan Product Advisor has compared the data from uploaded tax return(s) to data from IRS tax transcripts and has found the data to be consistent; therefore, for eligible income, the Seller is not responsible for investigating inconsistent information between these documents. (iv) Other Guide provisions related to an automated income assessment using tax data Refer to the following Guide provisions for additional requirements related to the automated income assessment using tax data: Guide provision Guide location Verification of current existence of the business Section 5304.1(m) Business assets used for closing Section 5304.1(l) Age of tax return requirements1 Section 5302.4(b) 1When evidence of completed IRS tax filing extension(s) is required, the Seller must obtain IRS Form 4868 and IRS Form 7004, if applicable.

(d) Data submission requirements (i) Tax returns uploaded to a service provider When tax returns are obtained and uploaded to a service provider, the Seller must: 1. Review and verify the Income Calculation Report, if applicable, against information in the Mortgage file to determine if any adjustments must be made. If so, the Seller must update the Income Calculation Report and upload it to the service provider, along with any additional documentation necessary to support the updates 2. Submit the most current version of the Income Calculation Report to Loan Product Advisor. Loan Product Advisor will assess, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income based on data from the federal income tax returns and the Income Calculation Report. Note: If the Income Calculation Report is updated or additional income documentation is provided, the Seller must upload the updated report and/or income documentation to the service provider and submit the updated information to Loan Product Advisor. 3. Indicate in Loan Product Advisor that the Borrower is self-employed (ii) Tax transcripts obtained from a service provider When tax transcripts are obtained from a service provider and not used with the Freddie Mac Income Calculator, the Seller must: 1. Submit the Mortgage to Loan Product Advisor, which assesses, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income reported on Schedule C based on data from the federal income tax transcripts 2. Indicate in Loan Product Advisor that the Borrower is self-employed (iii) Freddie Mac Income Calculator using tax data When the Seller uses the Freddie Mac Income Calculator with tax data, the Seller must: 1. Submit accurate tax return data or tax transcript data, as applicable, to the Freddie Mac Income Calculator, which will assess, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income. Note: When using tax transcripts, the only eligible self-employed income is from a sole proprietorship, reported on IRS Schedule C as described in Section 5304.2(b). 2. Indicate in Loan Product Advisor that a Borrower is self-employed if the data from the Freddie Mac Income Calculator Certificate is submitted to Loan Product Advisor

(e) Representation and warranty relief eligibility and documentation requirements (i) Representation and warranty relief overview Two types of relief from enforcement of representations and warranties are available through an automated income assessment using tax data. Eligibility for each type of the following representation and warranty relief is determined separately: ■ Income representation and warranty relief ■ Tax data representation and warranty relief, when applicable: ❑ When using tax returns uploaded to a service provider, data representation and warranty relief may be available when the tax transcript is requested via a service provider and Loan Product Advisor compares the data from uploaded tax returns(s) to data from the IRS tax transcripts ❑ When using tax transcripts obtained from a service provider, data representation and warranty relief may be available when the tax data is assessed by Loan Product Advisor If multiple Loan Product Advisor submissions are made, Seller’s eligibility for representation and warranty relief will be based on the results on the Last Feedback Certificate. (ii) Income representation and warranty relief results on Feedback Certificate When income representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the relief available is described in the following table: Income representation and warranty relief based on Feedback Certificate results Eligibility result Representation and warranty relief Eligible1 The Seller is relieved from enforcement of the following representations and warranties: 1. Accuracy of the income calculation related to eligible self-employed income shown on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or Form 91 (or a similar alternative form), as applicable, and 2. The business review and analysis described in Section 5304.1(d), including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower Partial1 When partial income representation and warranty relief is granted for a source(s) as confirmed by the feedback message, the Seller is relieved from enforcement of the following representations and warranties: 1. Accuracy of the income calculation related to eligible self-employed income shown on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or Form 91 (or a similar alternative form), as applicable, and 2. The business review and analysis described in Section 5304.1(d), Income representation and warranty relief based on Feedback Certificate results Eligibility result Representation and warranty relief including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower Not eligible The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income. Exception: The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”. Unavailable The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income. Exception: The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”. 1Evidence of continued income stability has been met as required in Section 5304.1(g) for the selfemployed income eligible for representation and warranty relief when the Seller obtains IRS Form 4868 confirming IRS tax filing extension. (iii) Data representation and warranty relief results on the Feedback Certificate When data representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the relief available is described in the following table: Data representation and warranty relief based on Feedback Certificate result Eligibility result Representation and warranty relief Eligible Tax returns uploaded to a service provider The Seller is relieved from enforcement of representations and warranties related to the accuracy and integrity of the data from tax return(s) uploaded to the service provider for eligible self-employed income shown on the Income Calculation Report or Form 91 (or a similar alternative form). Tax transcripts obtained from a service provider The Seller is relieved from enforcement of representations and warranties related to the accuracy and integrity of the data from tax transcripts obtained from a service provider for eligible Schedule C income. Not eligible The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider. Unavailable The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider. (iv) Income representation and warranty relief results on the Freddie Mac Income Calculator Certificate When income representation and warranty relief eligibility results are provided on the Freddie Mac Income Calculator Certificate, the relief available is described in the following table: Income representation and warranty relief based on the Freddie Mac Income Calculator Certificate result Eligibility result Representation and warranty relief Eligible1 The Seller is relieved from enforcement of the following representations and warranties: 1. Accuracy of the income calculation related to eligible self-employed income shown on the Freddie Mac Income Calculator Certificate, and 2. The business review and analysis described in Section 5304.1(d), including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower Not eligible The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income. 1Evidence of continued income stability has been met as required in Section 5304.1(g) for the self-employed income eligible for representation and warranty relief when the Seller obtains IRS Form 4868 confirming IRS tax filing extension. (v) Data representation and warranty relief results on the Freddie Mac Income Calculator Certificate When data representation and warranty relief eligibility results are provided on the Freddie Mac Income Calculator Certificate, the relief available is described in the following table: Data representation and warranty relief based on Freddie Mac Income Calculator Certificate result Eligibility result Representation and warranty relief Eligible Tax returns uploaded to a service provider The Seller is relieved from enforcement of representations and warranties related to the accuracy and integrity of the data from tax return(s) uploaded to the service provider for eligible self-employed income shown on the Income Calculation Report or Form 91 (or a similar alternative form). Not eligible The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider. Data representation and warranty relief based on Freddie Mac Income Calculator Certificate result Eligibility result Representation and warranty relief Unavailable The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider. (vi) Documentation requirements based on representation and warranty relief result on Feedback Certificate When income representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the Seller must maintain in the Mortgage file the income documentation indicated on the Last Feedback Certificate in lieu of other documentation required in Section 5304.1. Additional documentation requirements are described in the following table: Documentation requirements based on representation and warranty relief result on Feedback Certificate Eligibility result Income documentation requirements Eligible The Seller must maintain in the Mortgage file: ■ The most recent Income Calculation Report or Form 91 (or a similar alternative form), as applicable ■ The Borrower’s federal income tax returns or tax transcripts as applicable in accordance with Section 5304.1(n) ■ Documentation to support adjustments as described in Section 5304.2(d)(i) above, if applicable ■ All documentation submitted to the service provider, including the most recent uploaded Income Calculation Report used by Loan Product Advisor ■ IRS Form 4506-C in accordance with Section 5302.5. Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Form 4506-C. When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must either: 1. Verify and document the income as required by the Guide, or 2. Remove the income and resubmit the Mortgage to Loan Product Advisor Partial The Seller must maintain in the Mortgage file: ■ The most recent Income Calculation Report or Form 91 (or a similar alternative form), as applicable ■ The Borrower’s federal income tax returns uploaded to the service provider or tax transcripts as applicable in accordance with Section 5304.1(n) ■ Documentation to support adjustments as described in Section 5304.2(d)(i) above, when applicable ■ All documentation submitted to the service provider, including the most recent uploaded Income Calculation Report used by Loan Product Advisor ■ IRS form 4506-C in accordance with Section 5302.5. Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Documentation requirements based on representation and warranty relief result on Feedback Certificate Eligibility result Income documentation requirements Form 4506-C. When there are multiple income sources and one or more income source(s) are needed to qualify the Borrower, document the income source(s) as required by the feedback messages. Not eligible The income must be verified and documented as required by the Guide. Unavailable The income must be verified and documented as required by the Guide. (vii) Documentation requirements based on representation and warranty relief result on the Freddie Mac Income Calculator Certificate When income representation and warranty relief eligibility results are provided on the Freddie Mac Income Calculator Certificate, the Seller must maintain in the Mortgage file the income documentation indicated on the last Freddie Mac Income Calculator Certificate in lieu of other documentation required in Section 5304.1. Additional documentation requirements are described in the following table: Documentation requirements based on representation and warranty relief result on the Freddie Mac Income Calculator Certificate Eligibility result Income documentation requirements Eligible The Seller must maintain in the Mortgage file: ■ The Freddie Mac Income Calculator Certificate reflecting the calculated income amount for each income source used to underwrite the Mortgage ■ The Borrower’s federal income tax returns or tax transcripts as applicable in accordance with Section 5304.1(n) ■ IRS Form 4506-C in accordance with Section 5302.5. Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Form 4506-C. When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must verify and Documentation requirements based on representation and warranty relief result on the Freddie Mac Income Calculator Certificate Eligibility result Income documentation requirements document the income as required by the Guide. Not eligible The income must be verified and documented as required by the Guide.