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.