NASFAA has received updated guidance from the Department of Education (ED) related to tax filing extensions and verification requirements. Our recent article on the subject stated the following:
"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."
This was based on an interpretation of the following text from page AVG-88 in the 2009-10 FSA Handbook:
"In addition to supplying the above documentation, the student must submit a copy of the tax returns when filed. When you receive the completed tax returns, you may use them to re-verify the required data. A student who fails to submit a copy of the filed tax return or alternative documents before the deadline for verification is ineligible for FSA funds and is required to repay any aid disbursed."
A common interpretation of the Handbook text is that the original tax filing extension documentation and the W-2 forms constitute alternative documents, i.e., by submitting those documents before the verification deadline, the student has met all verification requirements. This interpretation is further supported by the regulations governing verification documentation, which state that the institution "shall accept, in lieu of an income tax return or an IRS listing of tax account information" the filing extension documentation and W-2 forms.
However, ED has recently clarified that "alternative documents" in the Handbook text refers to tax transcripts, other forms with IRS tax information, etc. Therefore, if a student submits tax filing extension documentation and W-2 forms, but fails to submit any further documentation before the verification deadline, the student is ineligible for Title IV funds and is required to repay any aid disbursed. In this situation, ED stressed that the student, not the school, is liable for the overpayment(s).
We believe that the Handbook text is ambiguous. Also, we understand the difficult position that schools are in when they must require that a student repay what could be many thousands of dollars, presumably well into or after the end of the school year. We intend to pursue the issue with ED, however, in the meantime, we wanted to inform our members of ED's current guidance.
ED has announced that verification will be one of the topics for this fall's round of negotiated rulemaking, but has not yet announced details or solicited negotiators. If you have comments or suggestions on this or other verification topics, please email them to negreg@nasfaa.org so that we can advocate for our members during the negotiated rulemaking process.
By Karen McCarthy, Assistant Director, Professional Assessment, Training, and Regulatory Assistance
Posted 08/12/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.
