One of the most popular benefits of a NASFAA membership is our AskRegs service. Staffed by the financial aid experts in NASFAA's division of Professional Assessment, Training, and Regulatory Assistance (PATRA), AskRegs gives NASFAA members personal assistance with regulatory or compliance questions. Many questions require research and/or consultation with the Department of Education. Applicable statutory or regulatory citations as well as other Department of Education guidance references are provided with our answers.

Here's a recent questions that AskRegs staff fielded:

Dear NASFAA: As an institution, are we allowed to have a policy that states we will not disburse funds to a student who was selected for verification but has filed for a tax extension and therefore unable to provide a copy of his tax return? We'd disburse once the student has submitted his tax return to IRS and the institution and the verification process has been completed. We would base this on the paragraph in the handbook that states "You have the authority to withhold disbursement of any FSA funds until a student selected for verification has completed it."

Answer: No, this policy wouldn't be permitted. 668.57 specifies the verification documentation. Under 668.57(a)(3):

"An institution shall accept, in lieu of an income tax return or an IRS listing of tax account information of an individual whose income was used in calculating the EFC of an applicant, the documentation set forth in paragraph (a)(4) of this section if the individual for the base year- .... (ii) Is required to file a U.S. tax return and has been granted a filing extension by the IRS ... (A) A copy of the IRS Form 4868, "Application for Automatic Extension of Time to File U.S. Individual Income Tax Return," that the individual filed with the IRS for the base year, or a copy of the IRS's approval of an extension beyond the automatic four month extension if the individual requested an additional extension of the filing time; and (B) A copy of each IRS Form W-2 that the individual received for the base year, or for a self-employed individual, a statement signed by the individual certifying the amount of adjusted gross income for the base year; ..."

Since the word "shall" is used, there is no institutional discretion. An IRS extension letter and the W2 are considered alternative documentation. You must accept the alternate documentation as long as you have reason to believe the documentation is accurate and complete. Once the student submits those documents, he or she has completed verification.

You must ask students with filing extensions to submit their final tax returns to you. If a tax return is ultimately submitted, you may, but are not required to, re-verify. If the tax return is never submitted, no further action is required. Remember, the regulation requires the school to request the tax return be submitted, but if it ultimately is not, the school has fulfilled its obligation by requesting the completed tax return.

If you have a regulatory question for NASFAA, submit your questions to AskRegs. When researching answers, NASFAA does not share identifiable institutional information with the Department unless authorized by the school. AskRegs responses represent NASFAA's understanding and while NASFAA believes that this response is accurate and factual, it has not been reviewed or approved by the U.S. Department of Education (ED). If you should need written confirmation for audit or program review purposes, please contact your ED Secretary's Regional Representative (SRR) or ED School Participation Team representative for additional guidance in this regard.

Posted 06/19/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.