HIGHER EDUCATION

Nelia Kruger
Manager, CPA, MSA

15 June 2017

The IRS Data Retrieval Tool (“DRT”) allows applicants who have already completed their federal income tax returns to prefill answers to some of the questions on the Free Application for Federal Student Aid (“FAFSA”) form by transferring data from their federal income tax returns. Starting with the 2012-2013 award year, the DRT saved families time, reduced the likelihood of being selected for verification and, most importantly, significantly increased the number of completed FASFAs.

As of March 2017, however, this tool is unavailable for award years 2016-2017 and 2017-2018 as the IRS makes enhancements to encrypt or mask sensitive student data. What prompted the action was not a breach of data or a hack, but a function of how DRT interacts directly with the student. Identity thieves posed as students to begin the FASFA process and used the DRT, which automatically populated the FASFA with critical and identifying information, to obtain a student’s adjusted gross income (“AGI”). This information allowed the thieves to file fraudulent tax returns.

According to IRS Commissioner John Koskinen, about 100,000 taxpayers were flagged for beginning the FASFA process, using the DRT, but not completing their application. He also told members of the Senate Finance Committee that about 8,000 fraudulent refunds were issued; totaling $30 million, but that the IRS did prevent another 14,000 illegal refunds from going out the door and halted action on 52,000 other returns.

In the meantime, the FASFA application system is operational but has slowed since the DRT’s removal. To get tax return information for the FAFSA application, which this year requires information from 2015 tax returns, students and families who do not have copies of those returns must try to get a copy of their return by accessing the tax software they used to prepare it, or, if they used a tax professional, they must contact the preparer and ask for the information. The IRS and FASFA.gov have published guides for students and their families to assist with the completion of the FAFSA.

The IRS also suggested the following options for retrieving the necessary 2015 tax information:

1. Access the tax software product you used to prepare and file your 2015 return. You may be able to access your account to download/print a copy.

2. Contact the tax preparer/provider who filed your 2015 return if you used a tax professional.

3. Download your tax transcript (a summary) at https://www.irs.gov/individuals/get-transcript. Review the rigorous identity authentication requirements for Secure Access before attempting to register.

4. Get a Transcript by Mail and a transcript will be mailed to the address on your return within five to ten days.

5. Call our automated line at 800-908-9946 to order a transcript by mail.

In response to the impact the DRT suspension will have on institutions, the Department of Education released Dear Colleague Letter GEN-17-04 providing increased flexibilities relating to verification procedures. An example of these flexibilities includes consideration of a signed paper copy of the 2015 IRS tax return that
was used by the tax filer for submission to the IRS as acceptable documentation to verify FAFSA/ISIR tax return information. In addition, the verification tracking group V3 and V6 have been eliminated for award years 2016-2017 and 2017-2018, respectively.

Some additional changes to FAFSA that will assist institutions while DRT is being fortified are: 1) The FAFSA will be available earlier (October 1 of the previous year instead of January 1 of the upcoming school year) and 2) FAFSA will collect income information from an
earlier tax year (2015 tax information for award years 2016-2017 and 2017-2018). This provides students, families and institutions some additional time to complete the FASFA as well as complete their tax returns. The hope is that this new process will align the FASFA with the college application process, reduce the need for students or families to estimate income information, allow more time for students to explore and understand financial aid options and to provide them with the opportunity to apply for aid before state and
school deadlines.

The ultimate goal during this time of change for all institutions is to ensure that all students have the opportunity to apply for student financial aid safely and securely.

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