FSA ANNOUNCES SCHOOLS CAN ACCEPT SIGNED TAX RETURNS

BREAKING NEWS – FSA ANNOUNCES SCHOOLS CAN ACCEPT SIGNED TAX RETURNS FOR VERIFICATION

Federal student Aid just released guidance allowing schools and college financial aid administrators to accept a signed copy of a 2016 or 2017 income tax return in lieu of tax transcript for the 2018-2019 and 2019-2020 award years as applicable. The announcement provides immediate relief to students beleaguered with problems obtaining the official IRS tax return transcript as has been required until now.

Students and parents who did not file and were not required to file a tax return are still required to provide verification of nonfiling from the IRS, but under the new guidance if the individual is unable to obtain verification of nonfiling from the IRS or other tax authorities and, based upon the institution’s determination, it has no reason to question the student’s or family’s good-faith effort to obtain the required documentation the institution may accept:

  • A signed statement certifying that the individual
    • Attempted to obtain the verification of nonfiling from the IRS or other tax authorities and was unable to obtain the required documentation; and
    • Has not filed and is not required to file a 2016 or 2017 income tax return, and a listing of the sources of any 2016 or 2017 income earned by the individual from work and the amount of income from each source; and
  • A copy of IRS Form W–2, or an equivalent document, for each source of 2016 or 2017 employment income received by the individual.

FSA also released an announcement informing the Financial Aid community that the Central Processing System will be skipping the database match with Selective Service System during the government shutdown.

According to the electronic announcement, FSA states that “during this match bypass, Student Aid Reports (SARs) and Institutional Student Information Records (ISIRs) will display Comment Code 390: “We were unable to verify your eligibility for federal student aid with one or more other federal agencies through computer matching programs. Your school will contact you if additional information is needed.”  The CPS will assign a blank value to the Selective Service Match Flag on SARs and ISIRs unless the corrected transaction already has a valid SSS match flag value that the CPS can pull forward to the new transaction. “

When the shutdown is over, CPS will reprocess ISIR records for impacted students. You can read all about it here in this electronic announcement from FSA.


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ISIR CORRECTIONS DUE TO TRANSFER OF INCORRECT TAX YEAR DATA FROM IRS

According to a recent announcement from Federal Student Aid (FSA), some FAFSA applicants who attempted to file a correction to their 2018-2019 FAFSA received 2017 tax year data instead of the correct 2016 tax year data. It appears that this glitch affected only a small number of applicants, particularly those who made a correction to their 2018-2019 FAFSA between September 30, 2018, and October 4, 2018, and used the IRS Data Retrieval Tool to transfer their tax information from the IRS to the FAFSA. FSA identified the issue and resolved the problem with the IRS Data Retrieval Tool on October 4th, 2018, so it shouldn’t happen again.

2018-2019 ISIR CORRECTIONS MADE DUE TO TRANSFER OF INCORRECT TAX YEAR DATA FROM IRS

On October 26, 2018, the Central Processing System reprocessed the ISIRs of affected applicants and voided the bad transactions – but they did NOT correct the tax information so ISIR corrections still need to be made. Instead, emails are being sent to affected applicants alerting them to the problem and informing them to go online and make another ISIR correction by transferring the correct 2016 IRS tax information to the FAFSA using the DRT. This issue reportedly impacted a very small number of applicants, but it is important to note that the reprocessed transactions are intended solely to alert impacted applicants and institutions that action is required; the CPS reprocessing did not modify the financial information transferred from the IRS.

Several methods exist for schools to identify records resulting from the October 26 reprocessing:
Reprocessed Institutional Student Information Records (ISIRs) will be sent under the IGSG19OP message class.
SARs and ISIRs will include SAR comment code 172, which states “This SAR was produced because we processed a change to your information based on information reported to us by another agency or because of a processing system change. Review your SAR to see what effect, if any, this change has had on your application, and call 1-800-4-FED-AID (1-800-433-3243) if you have any questions.”

ISIRs produced because of the reprocessing will include a value of “04” for the Reprocessed Reason Code (ISIR field #248).

The FAA Information page in Student Inquiry on the FAA Access to CPS Online Web site will display “04 – Reprocessed for wrong tax year transferred from IRS DRT” for the Reprocessing Code for the transaction resulting from the reprocessing. The Reprocessing Reason Code 04 description will not display in FAA Access to CPS Online until after FSA implements updates to the site in a future release.

IRS ANNOUNCED UPDATED TAX TRANSCRIPTS REDACTING SENSITIVE INFORMATION

As we reported last month, the IRS recently announced that as of September 23, the individual tax return transcript(s) was replaced with an updated version that redacts sensitive personal identifying information of the tax filer. These changes are part of an effort to continue to combat stolen identity refund fraud, and to protect taxpayer information.

At the end of the current calendar year, when taxpayers or third parties call the IRS with a transcript request, the transcript will be mailed to the taxpayer’s address of record. The transcript will not be faxed on request to either the taxpayer or a third party.

According to a recent electronic announcement from FSA here’s what’s changed on the IRS Tax Transcripts

As part of the verification process, students (and if applicable their spouses or parents) may be required to submit to institutions a copy of their income and tax information via a tax transcript. The IRS has announced that with the launch of the new tax transcripts the following information will now display:

  • Last 4 digits of any SSN listed on the transcript (e.g. XXX-XX-1234)
  • Last 4 digits of any EIN listed on the transcript (e.g. XXX-XX1234)
  • Last 4 digits of any account or telephone number
  • First 4 characters of the last name of any individual
  • First 4 characters of a business name
  • First 6 characters of the street address, including spaces
  • All money amounts, including balance due, interest and penalties

Based on their review of the changes to the IRS tax transcripts, they do not believe that the redaction of sensitive personal information will pose a significant burden for institutions in using the new tax transcripts for verification purposes. Institutions should still be able to identify and match the tax payer information on the tax transcript with the FAFSA information on file either by use of the limited redacted information provided on the tax transcript or by use of the new “Customer File Number” available on the new transcript. As a result, the IRS tax transcript is still acceptable documentation for verification purposes.

Additional changes were made to the IRS forms 4506-Td 4506T-EZ provide an opportunity for the tax filer to provide a Customer File Number which is optional and available for the filer to use when using the form to request a transcript. Starting early next calendar year tax payers may also assign a Customer File Number to their tax transcript that they obtain through Get Transcript On-line and Get Transcript On-Line By Mail. Up to 10 numeric characters, such as a student identification number, can be included to better assist institutions in matching the tax transcript to the appropriate student.

In the spring of 2019 the IRS plans to remove the option for requesting third-party receipt of tax information from Form 4506-T and 4506T-EZ.  Instead, transcripts will be mailed only to the taxpayer’s address of record. Institutions still interested in receiving tax transcripts directly from the IRS may request to become participants in the IRS’ Income Verification Express Services [IVES] program by registering for e-Services on IRS.gov.

For more information from FSA, check out this electronic announcement here.

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2018-2019 ISIR CORRECTIONS DUE TO TRANSFER OF INCORRECT TAX YEAR DATA

According to a recent announcement from Federal Student Aid (FSA), some FAFSA applicants who attempted to file a correction to their 2018-2019 FAFSA received 2017 tax year data instead of the correct 2016 tax year data. It appears that this glitch affected only a small number of applicants, particularly those who made a correction to their 2018-2019 FAFSA between September 30, 2018 and October 4, 2018 and used the IRS Data Retrieval Tool to transfer their tax information from the IRS to the FAFSA.  FSA identified the issue and resolved the problem with the IRS Data Retrieval Tool on October 4th, 2018, so it shouldn’t happen again.

On October 26, 2018 the Central Processing System reprocessed the ISIRs of affected applicants and voided the bad transactions – but they did NOT correct the tax information so ISIR corrections still need to be made. Instead, emails are being sent to affected applicants alerting them to the problem and informing them to go on line and make another ISIR correction by transferring the correct 2016 IRS tax information to the FAFSA using the DRT. This issue reportedly impacted a very small number of applicants, but it is important to note that the reprocessed transactions are intended solely to alert impacted applicants and institutions that action is required; the CPS reprocessing did not modify the financial information transferred from the IRS.

Several methods exist for schools to identify records resulting from the October 26 reprocessing:

Reprocessed Institutional Student Information Records (ISIRs) will be sent under the IGSG19OP message class.

SARs and ISIRs will include SAR comment code 172, which states “This SAR was produced because we processed a change to your information based on information reported to us by another agency or because of a processing system change. Review your SAR to see what effect, if any, this change has had on your application, and call 1-800-4-FED-AID (1-800-433-3243) if you have any questions.”

ISIRs produced because of the reprocessing will include a value of “04” for the Reprocessed Reason Code (ISIR field #248).

The FAA Information page in Student Inquiry on the FAA Access to CPS Online Web site will display “04 – Reprocessed for wrong tax year transferred from IRS DRT” for the Reprocessing Code for the transaction resulting from the reprocessing. The Reprocessing Reason Code 04 description will not display in FAA Access to CPS Online until after FSA implements updates to the site in a future release.

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NEW IRS GET TRANSCRIPT HEAVILY REDACTS PII

Concerns over the privacy of taxpayer data prompted the Internal Revenue Service (IRS) to make some changes to tax transcripts. Personally Identifiable Information (PII) on the new transcripts is heavily redacted, however financial entries are still visible. According to the IRS announcement here’s how the information is laid out (you can also see a sample here https://www.irs.gov/pub/irs-utl/New_Tax_Return_Transcript.pdf ).

Last 4 digits of any SSN listed on the transcript: XXX-XX-1234
Last 4 digits of any EIN listed on the transcript:  XX-XXX-1234
Last 4 digits of any account or telephone number
First 4 characters of the last name for any individual
First 4 characters of a business name
First 6 characters of the street address, including spaces
All money amounts, including balance due, interest and penalties

Since so much information is obscured, the IRS has created a new Customer File Number that lenders, colleges and other third parties that order transcripts for non-tax purposes can use as an identifying number instead of the taxpayer’s SSN. Third parties or taxpayers can create any 10-digit number, except for the taxpayer’s SSN, for use as an identifier. The Customer File Number listed on the 4506-T will be automatically posted and visible on the requested tax transcript, allowing the third party to match the document to the taxpayer. A Customer File Number can be, for example, a student ID number or some other number that the taxpayer would like to use.

The new transcripts went live on September 23, 2018 and are applicable for all tax years and are available through Get Transcript Online and Get Transcript by Mail services. Students and others using the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process are not affected.

Click here for an updated Form 4506-T, “Request for Transcript of Tax Return”.

Beginning in January next year, the IRS plans to stop faxing transcripts to both taxpayers as well as third parties. By May of 2019 the IRS also plans to stop mailing tax transcripts to third parties and will only mail them to the taxpayer’s address of record. According to the IRS, transcripts are generally mailed within five to ten business days.

DHS-SAVE SYSTEM IS BACK ONLINE FOR THIRD-STEP VERIFICATION REQUESTS

Earlier this year the new DHS SAVE system was taken off line temporarily due to system glitches causing errors and delays for school users trying to process third-step verification requests online. The SAVE system hierarchy issue returned a “No Record Found” error and has been resolved. Institutions may resume submitting third step verification requests to the SAVE system.

According to an electronic announcement from FSA, there remain a few circumstances under which the “No records found” error may continue to appear after entering the identifiers for students for whom the institution has received an ineligible second step response. FSA and DHS have identified the issue and expect to have it resolved in the next several weeks.

FSA says, if the “No records found” error message appear after entering the student’s DHS verification number correctly, the department has another workaround.

If the DHS Verification number was created more than 2 months ago, send the DHS verification number to applicationprocessingdivision@ed.gov and ask them to generate a new DHS Verification number or a successful secondary confirmation of the student’s status.

If this does not result in a successful confirmation, the institution should hold the record until the SAVE solution is implemented in the next several weeks. SAVE access will be available immediately for all records encountering the “No records found” error message once the SAVE solution is implemented. A subsequent Electronic Announcement will notify SAVE users of the change.

FSA announced several other changes to the DHS SAVE system too, including minor changes to the process PDPAs managing multiple Federal School Codes under a consolidated User ID will need to follow to add or delete users, and a procedure for users reopening closed cases. One of the major changes relates to “Parolee” or “Other” status responses.

According to FSA, for a student to be eligible for Title IV aid under a DHS “Parolee” status, financial aid administrators must collect the following immigration documentation: a document such as a Form I-94 showing the student’s unexpired Parolee status and a document providing evidence that the student is in the U.S. for other than a temporary purpose, which the student may provide on an I-797 Notice. In the past, the DHS paper Form G-845 response required a check mark in the box indicating that the student was paroled for at least one year. Instead, the SAVE system response screen will contain the message, “Application Pending I-485.” Form I-485 is an application for “Lawful Permanent Resident Status” and may be considered evidence that the student is in the U.S. for other than a temporary purpose. This comment must be present in the SAVE system for the student to be eligible for Title IV aid when designated by DHS as having Parolee status.

A SAVE response of “Other” indicates that the student is not eligible for Title IV aid. See the SAVE response comments box for details.

2019-2020 VERIFICATION REQUIREMENTS

For the 2019-2020 Award year, the verification tracking groups are the same as they were of the 2018-2019 award year and there weren’t any changes to the acceptable documentation requirements either.

Here’s a breakdown of the verification tracking groups and information you’re required to verify for each group.

V1 – Standard Verification Group
Tax Filers

  • Adjusted Gross Income
  • U.S. Income Tax Paid
  • Untaxed Portions of Individual Retirement Account (IRA) Distributions
  • Untaxed Portions of Pensions
  • IRA Deductions and Payments
  • Tax Exempt Interest Income
  • Education Tax Credits

Nontax Filers

  • Income Earned from Work

Tax Filers and Nontax Filers

  • Number of Household Members
  • Number in College

 V4 – Custom Verification Group

  • High School Completion Status
  • Identity/Statement of Educational Purpose

V5 – Aggregate Verification Group
Tax Filers

  • Adjusted Gross Income
  • U.S. Income Tax Paid
  • Untaxed Portions of IRA Distributions
  • Untaxed Portions of Pensions
  • IRA Deductions and Payments
  • Tax Exempt Interest Income
  • Education Tax Credits

Nontax Filers

  • Income earned from work

Tax Filers and Nontax Filers

  • Number of Household Members
  • Number in College
  • High School Completion Status
  • Identity/Statement of Educational Purpose

2018-2019 FAFSA VERIFICATION IRS TAX RETURN TRANSCRIPT MATRIX

IMHO the IRS Tax Return Transcript Matrix for Verification is one of the most useful tools a financial aid office can have. It breaks down each of the different types of tax return transcripts and correlates each of the lines on the tax transcript to the corresponding line on the FAFSA / ISIR. It even does a great job of matching up wording that may be different than what is used on the FAFSA, so you know exactly which line to use when verifying 2016 income.

FSA noted that for some items the transcript may display two or three values for an item. If only one value is displayed on the transcript, that value must be used for verification.  If more than one value is displayed on the transcript, the value associated with the item name that includes the words “Per Computer” must be used for verification.  The “Per Computer” line should be used for verification even if it is different than what was reported by the tax filer. In addition, a line may appear on some IRS Tax Return Transcripts that says “RECOMPUTED <tax return item name> PER COMPUTER”.  The amount on this line should be ignored for purposes of verification. The last three columns show the corresponding line item numbers from the three 2016 IRS tax returns (IRS Form 1040, IRS Form 1040A, and IRS Form 1040EZ).

FSA also noted that under provisions of the Higher Education Act (HEA), taxes and credits related to the Affordable Care Act (ACA) are not to be included in the amount of U.S. Taxes Paid that are used in the calculation of a student’s expected family contribution (EFC).

Grab your copy of the 2018-2019 FAFSA Verification IRS Tax Return Transcript Matrix here and while you’re at it, check out Dear Colleague Letter GEN 17-05 for a rundown of the required verification items for V1, V4 and V5 verification this year


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ISSUES REPORTED WITH IRS DRT FLAGS

FSA identified two issues that are occurring with data flags associated with the Internal Revenue Service Data Retrieval Tool on the 2018-2019 FAFSA on the web. The glitch appears to be doing one of two things; providing conflicting processed results or preventing the use if the IRS DRT and corre4ctions to financial data on certain transactions. FSA said that both issues would be fixed by the end of January but hasn’t yet announced the date of any corrections or reprocessing. In the meantime, they offer a description of both issues and a workaround for FAOs in the January 16, 2018 Electronic Announcement.

Issue #1: IRS Request Flag Not Updating Correctly in Limited Circumstances

We have confirmed that, in limited circumstances, schools are receiving applicant transactions that have an IRS Request Flag of 02 (IRS data for the [student/parent] was transferred from the IRS and was not changed by the user prior to submission of an application or correction) and an IRS Data Field Flag of 2 (IRS data was transferred and changed by user to a different value) for the student or parent Tax Return Filing Status field.

This conflicting flag value scenario occurs when the student or parent corrects the Tax Return Filing Status value after transferring data into the FAFSA form using the IRS DRT. The resulting transaction should display an IRS Request Flag of 03 (indicating the IRS data for the student/parent was transferred from the IRS and changed by the user) instead of 02. For example, if the applicant or parent corrects the Tax Return Filing Status from “Single” to “Head of household” after transferring data into fafsa.gov using the IRS DRT, the IRS Data Field Flag associated with the Tax Return Filing Status is correctly set to 2 indicating that the tax return filing status was changed. However, the IRS Request Flag remains set, incorrectly, to 02.

Workaround/Resolution:

We expect to have a correction in place by late January 2018, so that the IRS Request Flag is correctly set for subsequent transactions. In the meantime, for the remainder of the 2018-19 FAFSA processing cycle, financial aid administrators (FAAs) may accept an IRS Request Flag of 02 when the only IRS Data Field Flag equal to ‘2’ is the Tax Return Filing Status field. This allows FAAs to continue to consider these transactions as verified should the application be selected for verification.

Issue #2: IRS Request Flag 06 Not Updating Correctly, Preventing IRS DRT Usage

We have identified instances in which 2018-19 transactions include an IRS DRT Request Flag of 06, indicating that the student or parent is ineligible to use the IRS DRT, even though the information on the transaction would suggest otherwise. In these instances, fafsa.gov is preventing applicants from using the IRS DRT when making corrections on these specific transactions. Due to data edits, applicants also may experience issues with navigation or submitting corrections on fafsa.gov if they attempt to correct student or parent financial fields on impacted transactions. Additionally, we have determined that the IRS Data Field Flag values are not updating correctly for student or parent financial fields on these affected transactions.

The issue of the IRS Request Flag 06 not updating correctly and preventing the IRS DRT from being used when making corrections occurs when a student or parent performs all the following actions on fafsa.gov:

Corrects a data element on a transaction that does not affect eligibility to use the IRS DRT (such as the student’s middle initial);

Corrects a data element that does affect IRS DRT eligibility (such as the student or parent Tax Return Filing Status, Parents’ Marital Status, or Student’s Marital Status Date);

Advances to a subsequent section of the application;

Backtracks to the field affecting IRS DRT eligibility and changes the value back to what it was originally on the transaction;

Submits the correction for processing.

For example, an independent applicant completes a FAFSA form on fafsa.gov and uses the IRS DRT to transfer her tax information into her FAFSA form and submits the application, creating the 01 transaction. The applicant begins a correction to change her mailing address and prior to submission, also changes her marital status date, making her ineligible to use the IRS DRT. She navigates off of that page, then prior to submission, changes her marital status date back to its original date and submits the correction for processing, resulting in an 02 transaction.

Workaround/Resolution:

We expect to have a correction in place by late January 2018. Until that time, applicants or parents who have encountered the situation described above as issue #2 and who need to make corrections or wish to use the IRS DRT should do so to an earlier transaction that does not have the student or parent IRS Request Flag of 06. When making corrections to the earlier transaction, applicants and parents should avoid correcting any field that would make them eligible to use the IRS DRT, including but not limited to Tax Return Filing Status, Parents’ Marital Status or Student’s Marital Status Date.

If other corrections had been made to subsequent transactions, those corrections should be reapplied to this earlier transaction. This will allow the correct IRS Request Flag to properly carry forward to the new transaction. Using the example from above, the workaround for the applicant would be to access the 01 transaction (which has the 02 IRS Request Flag), make a correction to her mailing address and then submit that correction. The resulting 03 ISIR transaction will have the appropriate 02 IRS Request Flag and properly set IRS Data Field Flags.

NEW VERIFICATION Q&A

ED recently revised two verification answers pertaining to questions about acceptable documentation for FAFSA information selected for verification.

QUESTION 1 – What documentation must be collected from an applicant who was selected for verification if the applicant and/or spouse, or parent(s) filed an amended tax return with the IRS?

ANSWER 1 – The Department’s objective is to ensure that Title IV aid eligibility determinations are made based on the most accurate information possible. The FAFSA on the Web IRS Data Retrieval Tool (DRT) will only transfer certain tax information from an original tax return and none of the tax information from an amended tax return will be included. However, beginning with the 2018-2019 FAFSA processing year, the ISIR will indicate that the return was amended. Therefore, when an institution is aware that an amended tax return was filed, the institution must submit to the Secretary any changes to a nondollar item, or a single dollar item of $25 or more.

The institution must obtain a signed copy of the IRS Form 1040X that was filed with the IRS, in addition to one of the following:

  • IRS DRT information on an ISIR record with all tax information from the original tax return; or
  • an IRS Tax Return Transcript (that will only include information from the original tax return and does not have to be signed), or any other IRS tax transcript(s) that include all the income and tax information required to be verified.

Note that there may be rare cases when an applicant and/or spouse, or parent(s) did not file an IRS Form 1040X with the IRS, but whose tax and income information was amended by the IRS.  In these limited cases, an institution may accept documentation that include the change(s) made by the IRS, in addition to one of the items mentioned above.

QUESTION 2 – May an institution require an individual who has been granted a tax filing extension by the IRS to use the IRS Data Retrieval Tool (IRS DRT) or obtain an IRS Tax Return Transcript before completing verification? Must the tax return information be submitted to the institution after the income tax return has been filed?

ANSWER 2 – An institution may not delay completing verification for an applicant when a tax filing extension has been granted by the IRS. The income and tax verification regulatory requirements are met if a tax filer who has been granted a filing extension by the IRS provides the institution with the acceptable documentation consistent with the verification documents published in the Free Application for Federal Student Aid (FAFSA®) Information To Be Verified Federal Register notice for the applicable award year, e.g. a copy of IRS Form 4868 and a copy of IRS Form W–2 for each source of employment income received for the tax year. This provision provides extension filers with a timely alternative to complete the verification process to avoid delaying the applicant’s receipt of aid because of the IRS granted extension. For an individual who was called up for active duty or for qualifying National Guard duty during a war or other military operation or national emergency, in lieu of IRS Form 4868, an institution must accept a signed statement from the individual certifying that he or she has not filed an income tax return or a request for a filing extension because of that service. Beginning with the 2018-2019 award year, a signature is no longer required on the statement.

While submission of the documentation mentioned above meets the verification requirements and allows Title IV aid to be disbursed, an institution may require an individual granted an IRS tax filing extension to submit, after the tax return is filed, tax return information using the IRS DRT, or by submitting an IRS Tax Return Transcript within the deadline it established that is consistent with the deadline to submit verification documents published in the annual deadline dates Federal Register notice. However, beginning with the 2018-2019 award year, individuals who have only been granted an automatic six-month extension by the IRS must verify income and tax information either by using the IRS Data Retrieval Tool or by submitting to the institution an IRS Tax Return Transcript.  If the required documentation is not submitted by the institution’s established deadline, the student must return all Title IV aid (Federal Pell Grant, FSEOG, IASG, TEACH Grant, or Perkins Loan) disbursed before the student was selected, except for Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Federal Work Study (FWS) wages earned. No further disbursements of Title IV aid can be disbursed and no further Federal Work Study (FWS) employment may occur for that award year. However, an institution may not apply this provision to individuals granted a filing extension beyond the institution’s established deadline because the individual was called up for active duty or for qualifying National Guard duty during a war or other military operation or national emergency.