Beyond Verification: Be a Tax Return Super Sleuth

HEAG .

For many students selected for verification, it is not necessary to provide a tax transcript or copy of their federal tax return, depending on ISIR Request and Display flags. However, your office may collect them as part of your institutional aid application, you may receive them unsolicited, or students may submit them for years other than the base year. In any of these situations, once you have them in your possession, tax returns, schedules and W2 forms must be reviewed for conflicting data.

Here are some common inconsistencies that may require follow up or clarification on reported asset values.

  1. Interest or dividend income present on 1040 and/or schedule B attached, but no savings or investments reported.
  2. Profit or loss from business present on 1040 and/or schedule C or C-EZ attached, but business net worth left blank.
  3. Supplemental income or loss present on 1040 and/or schedule E attached, but no assets (investments or business) reported.

There are two caveats when comparing base year tax information with asset values. The first is that even if the student failed to report assets properly, including them may not change the student’s eligibility. So, it’s worthwhile to try to project the value if you can and recalculate before asking for an explanation or documentation. The second is that the timelines are different — the tax return reflects the base year while the asset values are as of the date the student is completing the FAFSA. Therefore, it’s entirely possible something changed in the interim. A written explanation from the student or parent explaining what changed is all that is needed for the file.

Conversely, the student may have reported asset values they weren’t supposed to such as the family home or an IRA. You may be able to identify these scenarios when there is no interest, dividend, business or supplemental income on the tax return, but there are large asset values reported in the FAFSA. Again, project the eligibility change that may ensue before investing the time to follow up with the student.

You can also find discrepancies in reported untaxed income. Untaxed interest income and untaxed distribution from IRAs are both included on the 1040. If you have received a W2 form, make sure to check boxes 12a through 12d for the following codes: D, E, F, G, H, and S and compare the total to the ‘Payments to tax deferred pension and retirement savings plans’ response. Un-reported or under-reported income is more likely to affect the student’s eligibility than the assets discussed above.

Federal Student Aid has a learning track devoted to verification and conflicting data if you are interested in learning more on the topic.

And, of course, the consultants at the Higher Education Assistance Group are well-versed in the intricacies of verification. Please email us at info@heag.us if we can assist you.