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1 12/4/2013 Tax Transcripts and Verification Requirements CASFAA 2013 Annual Conference Proprietary Workshop Program Integrity Questions and Answers Verification IRS.gov 2013 United Student Aid Funds, Inc. All rights reserved. 1

2 Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data Required Verification Items Non-income related items for certain applicants selected for verification: Household size. SNAP. Number in college. High school completion. Child support paid. Identity/educational purpose. Yes Was or will a federal income tax return be filed? No 1, Additional required items: Adjusted gross income. U.S tax paid. Untaxed IRA distributions. Untaxed pensions. Education credits. IRA deductions. Tax-exempt interest income. Additional required item: Income earned from work. Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data United Student Aid Funds, Inc. All rights reserved. 2

3 Customized Verification Process Verification Tracking Groups and Required Information Applicants selected for verification will be categorized into groups and identified by Verification Tracking Flags. Verification Tracking Flag Group Name V1 V2 V3 V4 V5 Standard SNAP Verification Group Child Support Paid Verification Group Custom Verification Group Aggregate Verification Group 1-2 Customized Verification Process Summary of Tracking Group Requirements Required to be Verified Verification Tracking Group V1 V2 V3 V4 V5 Household size Number in college Child support paid SNAP (Food Stamps) High school completion Identity/educational purpose Income/tax data 3 Customized Verification Process Verification Flag and Verification Tracking Flag The Verification Tracking Flag helps schools determine which data elements must be verified. Flag as it appears on the ISIR: Flag as it appears on FAA Access to CPS Online: United Student Aid Funds, Inc. All rights reserved. 3

4 Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data. Non-Income Related Items Non-Tax Filers Tax Filers Without Special Circumstances Tax Filers With Special Circumstances 4-11 Non-Income Related Items United Student Aid Funds, Inc. All rights reserved. 4

5 Non-Tax Filers Income Earned from Work Copy of W-2 Form for each source of employment; AND Signed statement applicant has not filed and is not required to file taxes; AND Signed statement indicating sources and income earned not listed on W-2 Form. If applicant is unable to obtain W-2 Form(s), school may accept signed statement listing sources and amounts of income earned from work, and reason W-2 Form(s) not available. 6 Tax Data What FAAs are Required to Know Whether a person was required to file a tax return. What the correct filing status for a person should be. An individual cannot be claimed as an exemption by more than one person. 6 Tax Filers Without Special Circumstances AGI U.S. Tax Paid Untaxed IRA Distributions Untaxed Pensions Education Credits IRA Deductions No documentation required if tax filer: Used Data Retrieval Tool and did not alter data. Tax transcript is required if tax filer: Did not use DRT; OR Used DRT but altered data. Tax-Exempt Interest United Student Aid Funds, Inc. All rights reserved. 5

6 Tax Filers With Special Circumstances Tax Filers Who Filed a Joint Return but Now Are Separated, Divorced, Widowed or Remarried Tax transcript; AND W-2 Form(s) if joint-filer no longer is married to individual on the return. Only required for filer whose income was used to calculate l the EFC. If self-employed or W-2 form not available, school may accept a signed statement which includes: Amount and source of income, and reason W-2 form is not available W-2 Form E Tax Filers With Special Circumstances Tax Filers Granted a Tax Filing Extension by the IRS Copy of IRS Form 4868 or approval of extension longer than six months; AND Documentation of income: Copy of W-2 2F Form(s); OR If self-employed, a signed statement certifying AGI and tax paid. Schools have option of collecting tax data once return is filed. Income information must be re-verified when tax data is received United Student Aid Funds, Inc. All rights reserved. 6

7 12/4/2013 Individuals for Whom a Tax Transcript Cannot be Provided or Located 11 Updated Guidance for Remainder of Electronic Announcement Oct. 23, 2013 Alternative documentation is acceptable if an attempt is unsuccessful to obtain a tax transcript by paper or online. If a paper request was made If an online request was made School needs a signed copy of each of the following: School needs a signed copy of each of the following: filed. Tax return filed Tax return filed. filed IRS response informing filer the request was unsuccessful. Print screen from official IRS website indicating the request was unsuccessful. Form 4506T-EZ or 4506-T with third party information provided. Form 4506T-EZ or 4506-T with third party information provided. If school has reason to believe tax return information is inaccurate, Form 4506 must be sent and results received Tax Filers With Special Circumstances Amended Returns Form 1040: 2013 United Student Aid Funds, Inc. All rights reserved. 7

8 Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data. IRS Tax Transcripts Tax Return Transcript: Provides most line items found on a tax return. Does not reflect changes made after filing. Tax Account Transcript: Provides information on financial status. Reflects changes made after filing. 12 IRS Tax Transcripts Requesting Tax Transcripts Request Method Where? Tax Transcript Output Document What? How? When? Direct to Third Party? Online Paper Mailed 5-10 days No Telephone (800) Paper Mailed 5-10 days No IRS2Go Mobile App Paper Mailed 5-10 days No IRS Form 4506T-EZ irs-pdf/f4506tez.pdf Paper Mailed 5-10 days Yes 12, United Student Aid Funds, Inc. All rights reserved. 8

9 Guidance Receipt of Unaltered Tax Data and a Tax Transcript When a school receives both unaltered tax data and a tax return transcript from an applicant: All corrections must be made if any item on the tax transcript differs by $25 or more from the amount reported on the FAFSA. 12 Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data. Comparison of 2012 Tax Return and Tax Transcript Data Hunter Davis: IRS Form 1040EZ. Tax transcript. Elizabeth Moore: IRS Form 1040A. Tax transcript. Ethan and Miranda James: IRS Form Tax transcript United Student Aid Funds, Inc. All rights reserved. 9

10 Comparison of 2012 Tax Return and Tax Transcript Data 13 23, 25 Yellow Blue Red Items Cross-reference to review for to potential tax return Items required for verification. conflicting line items. information. Potential Conflicting Information Wages Earned 25 Potential Conflicting Information Wages Earned United Student Aid Funds, Inc. All rights reserved. 10

11 Potential Conflicting Information HSAs 26 Potential Conflicting Information Eligible to File a 1040A/EZ? 41 Potential Conflicting Information Eligible to File a 1040A/EZ? United Student Aid Funds, Inc. All rights reserved. 11

12 Taxable Scholarship and Fellowship Income SCH 2,000 Rollovers Form 1040: 6, ROLLOVER Tax transcript: $6, Agenda Required Verification Items. Customized Verification Process.. IRS Tax Transcripts. Comparison of Tax Return and Tax Transcript Data United Student Aid Funds, Inc. All rights reserved. 12