ALTERNATIVE ACCEPTABLE DOCUMENTATION FOR VERIFICATION OF NON-FILING

ED’s Office of Postsecondary Education (OPE) informed schools that the IRS has stopped processing transcripts by mail until further notice. Although IRS Tax Transcripts are available online, some filers have not been able to access their account. As a result, some students may have to submit alternative documentation to complete verification. According to a recent electronic announcement, schools can accept a signed statement certifying that the individual:

• Attempted to obtain the VNF 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 an income tax return for the applicable tax year, and a listing of the sources of any income earned by the individual from work and the amount of income from each source for the applicable tax year; and
• A copy of IRS Form W–2, or an equivalent document, for each source of employment income received by the individual for the applicable tax year. During this period of national emergency, the Department is permitting institutions to accept a copy of a paystub, an employment offer letter, evidence of direct deposit from an employer, or other similar information for verification purposes. In the case of foster care youth, given the unlikelihood that such students would have earned enough to require them to file taxes, we will permit the institution to accept a signed statement from the foster care youth that he or she earned less than the amount that triggers the requirement for taxpayers to file tax returns.

If non-filing was a result of the taxpayer being granted an IRS extension beyond the automatic six-month extension for the tax year, an institution may accept the following:

• A signed statement certifying that the individual
• Attempted to obtain the VNF from the IRS or other tax authorities and was unable to obtain the required documentation; and
• Has not filed an income tax return and list the sources of any income, and the amount of income from each source for the applicable tax year. If self-employed, the signed statement must also include the amount of AGI and U.S. income tax paid for the applicable tax year;
• A copy of the IRS’s approval of an extension beyond the automatic six-month extension for the appropriate tax year; and
• A copy of IRS Form W–2 for each source of employment income received or an equivalent document for the applicable tax year.

In the event a student, parent, or spouse needs to provide a copy of their W2 but is unable to obtain a copy from the IRS, they may either request a duplicate one from the employer who issued the document, or if that’s not possible, may provide a signed statement attesting to their income that includes:
• The amount of income earned from work;
• The source of that income; and
• The reason why the IRS Form W–2, or an equivalent document, is not available in a timely manner.

UPDATES ON VERIFICATION OF NON-FILING AND USE OF PROFESSIONAL JUDGMENT FOR 2020-2021

In other big news, ED quietly released two big updates for the 2020-2021 award year in the 20-21 FSA Handbook Application and Verification Guide.

In the first update, ED provided guidance for when a school can accept a signed statement from a student, spouse or parent to verify that they did not file a Federal Income Tax Return. According to the updated 20-21 Application and Verification Guide, Individuals who can’t get a VNF letter from the IRS (or other tax authority) may instead submit a signed statement as long as the school has no reason to question the student’s or family’s good-faith effort to acquire the letter. Form 4506-T states that most requests are processed within 10 business days, so at least that amount of time should elapse before schools resort to a signed statement. Also, since a VNF must be dated on or after October 1, 2019, the statement cannot be signed and used before then either. (See Chapter 4, P. AVG-98. “Individuals who can’t get a VNF letter.”)

The statement must assert that the person attempted but was unable to get the VNF. For non-tax filers, the statement must also confirm that they have not filed and are not required to file a tax return for the relevant year, and it must list the sources and amounts of income earned from work. For extension filers, the statement must also confirm that they have not yet filed a return for the tax year and must list the sources and amounts of income; if they are self-employed, it must include the amount of AGI and U.S. income tax paid. Note that in both cases—for non-tax filers and extension filers—the other required documentation (e.g., W-2 forms) must still be provided.

In the second update, ED officially rescinded guidance issued in several Dear Colleague Letters related to the Financial Aid Office’s use of Professional Judgment for students and families receiving unemployment benefits. The Department specifically rescinded guidance in GEN-09-04, GEN-0905 and GEN-11-04. In the June 12, 2020 Errata and Updates notice ED says they removed the last sentence on the page “because it referenced outdated guidance”, confirming that ED no longer considers GEN-09-04 and GEN-09-05 to be in effect for the 2020-2021 award year. See FSA HB AVG Chapter 5, Page 125.

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.