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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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

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.

NEW VERIFICATION GUIDANCE

HigherEdExecutives

The Department recently provided important updates about verification including revised guidance for acceptable documentation and new guidance on dealing with amended tax returns beginning in 2018-2019. This and other information can be found on the Department’s Program Integrity Website.

Q. Must an institution complete verification for a selected applicant who is eligible for both subsidized and unsubsidized Title IV student aid when the applicant chooses not to accept the subsidized aid?

A. An applicant who is eligible for subsidized and unsubsidized Title IV student aid may not avoid completing verification by accepting only the unsubsidized Title IV student aid. In such a case, the institution must complete verification for the applicant to be eligible for any Title IV student aid.

However, except for applicants who are in Verification Tracking Group V4 or V5, an institution may, on a case by case documented basis, disburse unsubsidized Title IV aid to those applicants who are selected for Verification Tracking Group V1 if the institution has determined that there will be a delay in the completion of verification.

Q. May an institution disburse unsubsidized Title IV student aid, i.e., Direct Unsubsidized Loans and PLUS Loans, prior to completing verification for a selected applicant who is eligible for both subsidized and unsubsidized Title IV student aid?

A. Except for applicants who are in Verification Tracking Group V4 or V5, an institution may, on a case by case documented basis, disburse unsubsidized Title IV aid to those applicants who are selected for Verification Tracking Group V1 if the institution has determined that there will be a delay in the completion of verification. When determining the amount of the unsubsidized aid to be disbursed, the institution must ensure that the subsidized aid the applicant is estimated to receive is considered. After verification is completed, the institution must ensure that both the subsidized assistance and the unsubsidized assistance are adjusted, if necessary.

Q. How are distributions from an Individual Retirement Account (IRA) handled by the FAFSA-IRS Data Retrieval Tool, and how should a school address any portion of such a distribution that is “rolled over” into another qualified IRA? How are distributions from pensions and other annuities treated?

A. IRS requirements, as discussed in IRS Publication 75 and IRS Publication 575, provide that most distributions from IRAs (as well as from most pensions and annuities) are treated as taxable income. However, those publications discuss allowing some or all of these distributions to be excluded from taxable income under certain conditions. If none of the exclusionary conditions apply, the tax filer is instructed to report the full amount of the distribution on IRS Form 1040 line 15b for an IRA distribution and line 16b for pensions and annuities. If, however, the tax filer is eligible to exclude some or all of the distributions, the IRS instructs the tax filer to enter the full amount of the distribution on IRS Form 1040 line 15a or 16a, as appropriate. The tax filer is then instructed to subtract from the amount in 15a or 16a any portion of the distribution that, under IRS rules, is exempt from being considered as taxable income. The difference is then reported on lines 15b or 16b, as appropriate, and becomes part of the taxable income and thus, part of the tax filer’s adjusted gross income (AGI). If there are qualified rollovers, the IRS guidance tells the tax filer to enter the word “Rollover” on the tax return next to line 15b or 16b. Note that the corresponding IRA line items for an IRS Form 1040A are 11a and 11b for IRAs, and 12a and 12b for pensions and annuities.

The summary above is not provided as official IRS guidance. Tax filers should consult the IRS or their tax advisors for definitive guidance on the rules governing the treatment of IRAs and pensions and annuities for tax purposes.
FAFSA Requirements: Generally, amounts of any distributions that were excluded from taxable income under the IRS rules—the difference between line 15a and line 15b or between line 16a and 16b—are considered untaxed income for the purpose of calculating an applicant’s expected family contribution (EFC), and therefore, should be reported on the FAFSA as responses to the IRA and pension questions. However, the calculation of an EFC allows for the exclusion of any amount of the distribution that is a rollover. Thus, the FAFSA instructions tell the applicant to exclude rollover amounts when answering the above FAFSA questions. This guidance is also provided in Chapter 2 of the Department’s Application and Verification Guide that is part of the Federal Student Aid Handbook.
IRS Data Retrieval Tool: Of course, the FAFSA-IRS Data Retrieval Tool cannot know if the word “Rollover” was included on the tax return. Therefore, it assumes that the total difference between the distribution reported on line 15a or 16a, and the taxable portion on line 15b or 16b is untaxed income for EFC purposes, and that amount will be transferred from the FAFSA-IRS Data Retrieval Tool into the FAFSA as untaxed income for IRA distributions or pension distributions.

The FAFSA applicant, the applicant’s parent, or the institution may modify the amount that the FAFSA-IRS Data Retrieval Tool transferred into the FAFSA, if all or a portion of that amount should not be included as untaxed income because of a rollover. To support such a change, the institution must maintain documentation (see below) that the amount not included in the FAFSA was an amount that was the result of a rollover.

Beginning with the 2018-2019 FAFSA processing year, if the applicant or the applicant’s parent indicate that the amount transferred from the IRS into the FAFSA for the IRA distributions field or pension distributions field includes a rollover, he/she will be required to provide the amount of the rollover in a new entry field. Our system will then subtract the reported rollover amount from the amount of the IRA or pension distribution that was transferred from the IRS, and the result will be used in the calculation of the applicant’s EFC.

Verification Requirements: Since neither the information from the FAFSA-IRS Data Retrieval Tool nor an IRS Tax Return Transcript will include the tax filer’s “Rollover” notation, to verify the amounts that should be included on the FAFSA, the institution must obtain a written statement from the tax filer indicating the amount of the distribution that was excluded because it was an authorized IRS rollover. Acceptable documentation could be a signed statement from the tax filer. Acceptable documentation could also be a notation by the tax filer on the IRS Tax Return Transcript that includes the word “Rollover” beside the applicable item(s) on the transcript, like the instructions provided for the IRS Form 1040 or 1040A. If the institution accepts as documentation of the rollover a notation on the IRS Tax Return Transcript, it must ensure that the notation is signed and dated by the tax filer.

If the IRA or pension distributions were the only tax information that was changed for tax filers who used the IRS DRT, an institution should accept from the tax filer a signed statement confirming that the IRA or pension distributions included a rollover. A tax transcript would only be necessary if other IRS tax information was changed.

Q. What FAFSA/ISIR information must be verified if an institution receives an ISIR with an IRS Request Flag value of 07?

A. An IRS Request Flag with a value of 07 indicates that the applicant or parent filed an amended tax return. Therefore, if an institution receives an ISIR with an IRS Request Flag value of 07, it must contact the applicant to obtain the documentation needed to make changes to any of the FAFSA/ISIR data items that were amended, regardless of whether those items are required to be verified. This applies beginning with the 2018-2019 FAFSA processing year.

Q. 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?

A. 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.

Q. Is the information provided on a verification worksheet or other documentation at the institution sufficient to verify household size, number in college, or income earned from work for nontax filers; since the applicant signs the verification worksheet or other documentation submitted to the institution acknowledging that the information is correct?

A. A verification worksheet or other documentation at the institution may serve as the signed statement to verify household size, number in college, or income earned from work for nontax filers, if the worksheet or other documentation has a certification statement similar to what is included on the Department’s suggested verification text. An institution is not required to use the suggested verification text developed by the Department. It may use its own worksheet or require other documentation.

DEADLINE FOR 2016-2017 ISIR CORRECTIONS

This year, the federal deadline to make corrections or updates to a 2016-2017 ISIR is on Saturday September 9, 2016.

According to the Federal Register, the deadline date for the receipt of a signature page for the FAFSA (if required), correction, notice of change of address or school, or request for a duplicate SAR is September 9, 2017.

For all Federal student aid programs, an ISIR or SAR for the student must be received by the institution no later than the student’s last date of enrollment for the 2016-2017 award year or September 23, 2017, whichever is earlier.

Verification documents must be received by the institution no later than 120 days after the student’s last date of enrollment for the 2016-2017 award year or September 23, 2017, whichever is earlier.

2017-2018 FAFSA VERIFICATION – IRS TAX RETURN TRANSCRIPT MATRIX

Financial Aid Consultant - Verification

Federal Student Aid released the 2017-2018 FAFSA Verification-IRS Tax Return Transcript Matrix that institutions can use for verifying 2017-2018 tax return information for selected applicants. Because the 2017-2018 FAFSA uses prior-prior year income and tax return information, this matrix remains unchanged from the one FSA provided for the 2016-2017 FAFSA. The 2017–2018 FAFSA Verification-IRS Tax Return Transcript Matrix is applicable only for U.S. IRS tax return filers (IRS Form 1040, 1040A, and 1040EZ) and includes only the tax return items required by the Department to be verified for 2017–2018. IRS Tax Return Transcript shows most line items from a tax filer’s original tax return.  An IRS Tax Return Transcript does not include information from an amended tax return.

REPORTING IDENTITY AND HIGH SCHOOL COMPLETION STATUS VERIFICATION RESULTS TO FAA ACCESS TO CPS ONLINE

Institutions must report the verification results of identity and high school completion status, for any applicant for whom the institution received an ISIR with a Verification Tracking Group of V4 or V5, and for whom the institution requested verification documentation. This information must be reported through FAA Access to CPS Online either online, manually or through your Financial Aid Management Software. In a recent electronic announcement from Federal Student Aid, Jeff Baker reminded institutions of their obligations and provided a helpful chart and other info to schools. You can read the full electronic announcement here: http://bit.ly/2cjNStL

Availability of the IRS Get Transcript Online Tool

Now that the IRS has re-launched its “Get Transcript Online” tool using a new multi-factor authentication process, users of the system (including students and families mired in verification hell) will need to register prior to submitting a transcript request. A tax filer who is not able to register will have to request a tax transcript by mail, paper or phone – which let’s face it just takes forever. Keep in mind, the IRS does not accept requests for transcripts in person at it’s taxpayer assistance centers now either. So here’s what you need to know to help keep your students from going crazy. Continue reading Availability of the IRS Get Transcript Online Tool

PPY FAFSA Verification and Use of Professional Judgment Authority

Early FAFSA Verification and Conflicting Information Resolution
The Early FAFSA is just a few months away and has had many a FA office stressing out a bit as they scramble to get ready for the October 1, 2016 launch.

In case you missed it – Beginning with the 2017-2018 cycle, the FAFSA will not only be available to students and families three months earlier, it will also collect income information from the tax/calendar year one year earlier than has been used in the past. Thus for the 2017-2018 FAFSA, students and families will provide “Prior-Prior-Year” (PPY) income information from calendar year 2015 and not from calendar year 2016. Fortunately, almost all tax return filers will be able to electronically transfer their tax information directly into their FAFSA by using the IRS Data Retrieval Tool (DRT). Continue reading PPY FAFSA Verification and Use of Professional Judgment Authority

Revised 2016-2017 FAFSA Verification-IRS Tax Return Transcript Matrix

Ed has released corrected 2016-2017 IRS Tax Return Transcript Matrixes after several institutions noted that the original IRS Tax Return Transcript Matrix did not accurately describe which lines from an IRS Tax Return Transcript should be used for verification of Income Tax Paid. ED explains that this inaccuracy was the result of different placements on the IRS transcripts of certain taxes and credits that are related to the taxpayer’s enrollment (or lack of enrollment) in an approved health insurance program as provided for in the “Affordable Care Act” (ACA). Only a small number of taxpayers are impacted by these ACA taxes and credits.

Under provisions of the Higher Education Act (HEA), taxes and credits related to the ACA are not to be included in the amount of U.S. Income Tax that is used in the calculation of a student’s expected family contribution (EFC). http://1.usa.gov/1NZiq07