By Sherwin Hibbets, Director of Regulatory Affairs 

We are betwixt the years.  Between award years, that is.  Financial aid administrators have become quite proficient at this phenomenon.  Any aid administrator with more than a year’s experience has had to acquire the skill of working with many years’ information and data, usually two to three years at a time.  When prior-prior year (PPY) income was authorized for use in the processing of the Free Application for Federal Student Aid (FAFSA) a few short years ago, the demand for the multi-year skill was only accentuated.

At this point in the year, we are still processing for the 2018-2019 award year while some students have already completed their FAFSA for 2019-2020 and are awaiting responses about their aid eligibility!  This prompts an importance be placed on learning the specifics of each year’s verification requirements for those applications selected by the U.S. Department of Education’s (ED) Central Processing System (CPS), as well as the commonalities between the processing years.

Naturally, the impetus behind the implementation of “verification” was to ensure fiscal stewardship of taxpayer funding of the Title IV programs.  As stated in the first package of verification regulations in 1986, verification was implemented to “reduce error in the information reported by applicants on their applications for assistance….”[1]

Thus, verification remains a vital means to ensure an appropriate level of accountability is maintained in the dollars dispensed through the Title IV Federal Student Aid programs administered by ED.  But, there are annual updates to the requirements that necessitate institutions gain a keen awareness of the variations between the years’ verification provisions.  (And, on occasion, as happened in the last few months, adjusted guidance may occur mid-year.)

Due to the fact that the subject of “Verification” is an area of prime importance in the processing of Federal Student Aid, and due to our addition of some new tables in this year’s review of verification, we will provide this verification overview in two parts.

In this edition of our Regulatory Bulletin, we first describe the definitive resources for verification, as well as detail the means for authentication of income and related tax information.  This is followed by highlighting documentation that is acceptable to verify an applicant’s non-filing status.  Additionally, the various Verification Tracking Groups that are applicable in 2018-2019 and 2019-2020 are illustrated in grid format for quick review and access.

In the next edition of the FAME Regulatory Bulletin, we will expand our discussion on the topic of verification.  That issue will address more unique situations such as how to handle those applicants who are individuals that are eligible for Auto Zero Expected Family Contribution (EFC), along with documenting high school completion status and the applicant’s statement of educational purpose.  Finally, we will point out some thoughts and reminders related to the request for documentation needed to complete verification, as well as additional routine resources that are helpful in the verification process. 

Definitive Resources for Verification:  2018-2019 and 2019-2020 Guidance

The primary regulatory and sub-regulatory guidance (e.g., Dear Colleague Letters and/or Electronic Announcements) specific to the 2018-2019 and 2019-2020 award years is as provided in the documents detailed in the following table:

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Duplex View of the Two Years

The notification of the requirements applicable to verification for upcoming years is typically released in early spring of the calendar year that precedes the year in which the award year starts.  For example, the notice of information to be verified for 2018-2019 was published in the Notice provided in the May 5, 2017, Federal Register.[2]  And, the Notice of information to be verified for 2019-2020 application data was published in the March 28, 2018, Federal Register.

Shortly after ED publishes the Federal Register, which is the official notification of required verification items and what is considered acceptable documentation for verification, ED also produces a Dear Colleague Letter with more detailed reminders, along with a table of the applicable Verification Tracking Groups that will be used for the specified year.

For the 2018-2019 award year, ED released Dear Colleague Letter (DCLGEN-17-05.  It highlights the changes for the 2018-2019 award year related to acceptable documentation for affirming income information and clarifies what is considered a valid form of “government-issued photo identification.”  The DCL also emphasizes that due to the use of prior-prior year (PPY) income—which is 2016 income for 2018-19—there should be few instances in which an applicant will need to use estimated income and taxes paid due to not having already submitted his or her 2016 federal income tax return.  Additionally, changes to the Verification Tracking Groups for 2018-2019 are detailed, along with the information that must be verified for each tracking group.

Similarly, for the 2019-2020 award year, ED’s DCLGEN-18-03, was released the day after the Federal Register Notice that specified the required verification elements and acceptable documentation for this new processing year.  Of note is that, for the second year in a row, there are no changes to the FAFSA items that may require verification.  Further, for 2019-2020, the Verification Tracking Groups remain the same as those for the 2018-2019 award year.  Thus, for 2019-2020, little new information is required to be learned to be able to appropriately complete verification for selected applicants.

 Documentation of Income and Tax Returns 

Even with relatively stable verification requirements continuing for 2019-2020 following the minor changes made in 2018-2019, there has been some relief generated in the process.  ED’s announcement last month bore guidance that does ease the undertaking for some cases.

As we described in our January 11, 2019, “Did You Know?” posting in the FAME Help Center, ED provided written guidance about verification, the subject of which was first broached at the 2018 Federal Student Aid Conference in November 2018.   This mid-processing year guidance brought long-awaited clarification about the use of paper tax returns and directions for verification of non-filing tax status.  These changes are indicated again in the discussion below, followed by a table that highlights acceptable documentation. 

IRS Tax Filers

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Effective January 9, 2019, the following describes acceptable documentation that is applicable to processing for 2018-2019 and 2019-2020:

 

Taxpayers who filed their income tax returns with the United States Internal Revenue Service (IRS) or other tax authorities are required to submit, as applicable, 2016 tax account information for the 2018-2019 award year and 2017 tax account information for the 2019-2020award year, that includes the appropriate data of the tax filer that has been obtained:

  • from the Internal Revenue Service (IRS) through the IRS Data Retrieval Tool (DRT)* and that has not been changed after the information was obtained from the IRS; or
  • on a tax return transcript obtained from the IRS that lists tax account information of the tax filer; or
  • As of January 9, 2019, a signed copy of the U.S. income tax return the tax filer submitted to the IRS for the applicable tax year.

 

*NEW – IRS will notify the tax filer if his or her personal information was used to access their tax return information through the IRS DRT.

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Customer File Number – NEW

 

Institutions and applicants should be aware that tax filers may now provide a Customer File Number (CFN) when using the Form 4506-T or Form 4506T-EZ to request their tax transcript.  This is an option to increase security of information.  This is also to be available for use in obtaining their tax transcript via Get Transcript Online and Get Transcript by Mail (requested online).

  • Using a CFN in the tax transcript request allows the tax filer to enter up to 10 numeric characters, such as a student identification number, which can be included to better assist institutions in matching the tax transcript to the appropriate student.
  • The CFN will reject (not be accepted) if it matches a Social Security number (SSN) associated with the tax transcript. In other words, the CFN must be something other than the SSN.

Tax Return Transcripts Mailed to Taxpayer’s Address of Record – NEW

  • Beginning in “Spring” of 2019, IRS will only mail tax transcripts to the taxpayer’s address of record. They will no longer be able to be mailed to a third-party.
  • Institutions desiring to receive information directly may elect to become an IRS Income Verification Express Service (IVES) program by registering for e-Services on IRS.gov.
  • Alternatively, schools may utilize a third-party IVES participant (e.g., Veri-Tax) to obtain the IRS tax transcript for the tax filer.
  • Any charges incurred via use of IVES or a third-party IVES participant may not be passed on to the student. 

Rollovers of Untaxed Pension or IRA Distribution 

Should an applicant’s use of the IRS Data Retrieval Tool (DRT) to complete the FAFSA On-the-Web transfer a non-zero amount into the fields for Untaxed Pension or IRA Distribution, the applicant can report the amount of applicable rollover amount in the FOTW process and the CPS will subtract that amount.  This will result in:

  • The IRS Data Field Flag showing “2” (“Field changed by user prior to submission of application.”)
  • The institution being required to collect a signed statement from the taxpayer certifying that the untaxed pension or IRA distribution contained a rollover amount in order to complete verification of this item. 

Amended Returns

For both the 2018-2019 and 2019-2020 award years, the process for individuals who file amended tax returns remains as it has been since at least 2016-2017.  Those individuals selected for verification who filed an amended tax return will need to present to the institution:

  • A signed copy of the applicable IRS Form 1040X (amended return) filed with the IRS, and
  • IRS DRT information on an ISIR record with all tax information from the original tax return, or
  • A transcript obtained from the IRS that lists the pertinent year’s (2016 or 2017) tax account information of the tax filer(s)

It is important to recall ED’s implementation and use of the IRS Request Flag with a value of “07” to indicate that an applicant or parent filed an amended tax return.[3]  (See the Electronic Announcement dated December 12, 2017.)

 Extension Filers

For those individuals who are required to file a tax return (2016 or 2017, as applicable) but have not yet done so because they have been granted a filing extension by IRS beyond the automatic six-month extension for the tax year must submit:

  • A signed statement certifying that the individual(s):
  • Attempted to obtain the VNF from the IRS (or other applicable tax authority) and was unable to obtain the required documentation; and,
  • Has not filed a tax return, as applicable (2016 tax return for the 2018-2019 award year and 2017 tax return for the 2019-2020 award year) and lists the sources of his/her tax year income earned from work for the related year, and the amount of income from each source. (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 IRS Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return,” that they filed with the IRS for the corresponding tax year;
  • A copy of the IRS’ approval of an extension beyond the automatic six-month extension for the related tax year; and
  • A copy of his/her IRS Form W–2 Wage and Tax Statement (or equivalent) for each source of employment income in the relevant tax year (2016 or 2017).

Identity Theft Victims

Individuals who were victims of tax-related identity theft will need to:

  • provide a statement signed and dated by the tax filer indicating that he or she was a victim of IRS tax-related identity theft and that the IRS has been made aware of the tax-related identity theft, and
  • obtain the Tax Return DataBase View (TRDBV) transcript directly from the IRS. The identity theft victim will have to contact the IRS’ Identity Protection Specialized Unit (IPSU) at 1-800-908-4490 in order to validate identity and request a copy of the TRDBV.  The TRDBV should be submitted to the Financial Aid Office to assist in completing the applicant’s verification.

Non-IRS Tax Filers

Those applicants who filed taxes with another authorized taxing authority other than the IRS (e.g., tax filers in a U.S. Territory such as Guam, American Samoa, or the U.S. Virgin Islands) are required to submit a tax transcript of their tax return if it is available at no charge from the taxing authority.  If it is not available without paying a charge to obtain it, a signed copy of the tax filer’s applicable tax return may be accepted for purposes of verification.

NOTE:  Watch for next week’s Regulatory Bulletin for more information on additional scenarios, such as those eligible for the Auto Zero EFC.

Non-Tax Filers

For non-tax filers—those who have not filed—and are not required to file—an income tax return with the IRS must submit a Verification of Nonfiling (VNF) from the IRS or other applicable tax authority (e.g., from the Federated States of Micronesia, a U.S. territory or commonwealth, etc.).  The VNF from the IRS or other relevant tax authority must be dated on or after October 1 of the applicable tax year (2016 or 2017) in which the tax return would normally be filed.

In cases of non-tax filers who are not able to obtain a VNF from the IRS or other tax authority, and for whom the institution has no reason to question the individual’s good-faith effort to obtain the required documentation, the pertinent person may submit a signed statement of the relevant individuals (student, parent, etc.) certifying that the individual(s):

  • Attempted to obtain the VNF from the IRS (or other applicable tax authority) and was unable to obtain the required documentation; and,
  • Has not filed and is not required to file a tax return, as applicable (2016 tax return for the 2018-2019 award year and 2017 tax return for the 2019-2020 award year), that includes the appropriate data, as well as;
  • a detailed signed statement of the sources of his/her tax year income earned from work (for 2016 or 2017, as applicable) and the amount of income from each source; and
  • a copy of his/her IRS Form W–2 Wage and Tax Statement (or equivalent) for each source of employment income in the relevant tax year (2016 or 2017).

 

Note:  Dependent students who are non-tax filers are excluded from the verification requirement to provide confirmation of the dependent student’s non-filing status from the IRS or other relevant tax authority.  Be aware, however, that completion of other verification requirements for dependent students is still required.

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Delineation of Verification Tracking Groups

 

As a quick reference to the Verification Tracking Groups and the required/acceptable documentation applicable to each, the grid of “Verification Tracking Groups” is provided below, excerpted from the DCLs GEN-17-05 and GEN-18-03.  You will notice that Verification Tracking Groups V2, V3, and V6 are not in use in either of the referenced award years.  Those tracking groups are reserved for potential future use (and, as placeholders for the prior years when they were used).

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REMINDER:  To remain in compliance, it is critical that you report the verification results of identity and high school completion status for those students selected for verification by the Central Processing System (CPS) with the verification tracking flag V4 or V5.  This must be done through the FAA Access to CPS Online Web site.

Deliberation of Verification Points to Continue (in our next edition)

As we take a brief pause in our coverage of the similarities in verification requirements for 2018-2019 and 2019-2020, it is important to again recall the purpose of the verification process.  The need for assistance to enhance students’ opportunity to fulfill their educational pursuit seems ever-growing.  Yet, the Title IV dollars available to assist continue to be limited.  Therefore, it is incumbent upon financial aid administrators to fulfill that goal stated in the first verification regulations back in 1986:  “reduce error in the information reported by applicants on their applications for assistance….”  May each financial aid professional take on that challenge to fulfill the fiduciary responsibility accompanying participation in the Title IV programs, by absorbing the verification criteria outlined in the information and resources referenced above and apply them accurately, efficiently, and consistently.

In our next edition of the FAME Regulatory Bulletin, we will conclude our annual analysis of the verification requirements applicable in the current and upcoming award years by looking at situations in which applications may need special attention (e.g., applicants who qualify for the Auto Zero EFC, and documenting high school completion status), as well as thoughts about gathering the documentation necessary for verification.  Join us next week as we wrap-up our exploration of the land betwixt and between 2018-2019 and 2019-2020 verification processing.

Publication Date:  March 08, 2019

(DCL GEN1705 FR05052017 FR08222017 EA 06062018 DCL GEN1803 FR03282018)

[1] Federal Register, Volume 51, No. 50, March 14, 1986; page 8946.

[2] Federal Register, Volume 82, No. 86, May 5, 2017; page 21,204 cf.  Note that technical corrections were made to the Statement of Education Purpose contained in this Federal Register in the August 22, 2017, Federal Register.

[3] Program Integrity Questions and Answers – Verification, Question VI-Q10, posted 12/08/2017