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Tax Return Not Available

When an application is selected for verification, the financial aid administrator must compare certain lines of the FAFSA form with corresponding lines on the income tax returns of the student and parents. Sometimes, however, a copy of the tax return is not available.

If the tax return is not available because the family received an extension from the IRS, the financial aid administrator should require proof that the IRS granted an extension (i.e., a copy of IRS Form 4868 or a letter from the IRS granting the taxpayer an additional extension beyond the automatic four-month extension). The financial aid administrator may use copies of the W-2 forms in the interim (or a signed statement for self-employed individuals), but should require the applicant to submit a copy of the tax returns when they are filed and re-verify the application at that time.

Note that the automatic four-month extension ends August 15. If the parent claims that they have not yet filed an income tax return, they must supply a letter from the IRS granting them an additional extension.

If the family did not keep a copy of the tax return as filed, they should submit IRS Form 4506 (Request for Copy or Transcript of Tax Form) to obtain a copy of the return as actually filed with the IRS. (One can also obtain a tax transcript by calling the IRS at 1-800-829-1040, but this copy is sent only to the taxpayer's address on file with the IRS. If the tax transcript is not sent by the IRS directly to the school, the tax transcript must be signed by the family.) IRS Form 4506 is also useful if the financial aid administrator suspects that the copy of the tax return provided by the family has been falsified (i.e., the family provided one return to the IRS and a different version to the financial aid administrator). The IRS and the US Department of Education have started implementing a data match to detect (and eventually prevent) this kind of fraud.

If the applicant is a fiscal year filer, the applicant should use the income tax return that overlaps the most with the base year (the prior calendar year). This means a fiscal year filer with a fiscal year that ends as late as June 30 (with an income tax deadline of October 15) would use their current income tax return as opposed to the prior income tax return. It is a good idea when verifying a fiscal year filer to ask for a copy of the previous year's income tax returns. This will not only verify that the family is being honest about being a fiscal year filer, but also allow the school to verify that the income estimates are reasonable. The school can disburse aid based on the W-2s and other documentation, but the family must provide the school with the actual income tax returns when available. If the family fails to provide the school with the income tax returns by the deadline, the family will be required to repay all aid received. The school will also be liable for any interim disbursements.

If the taxpayer's income was below the threshold for which a return was required, the taxpayer instead should report income earned from work instead of AGI on the FAFSA. Even though this income is not taxed, it does not get reported on the worksheets as untaxed income.


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