Close Encounters of the Verification Kind

1. Close Encounters of the Verification Kind Travis L. Brown Director of Financial Aid American InterContinental University

2. Something Old; Something New • The verification regulations reside in 34 CFR 668, Subpart E • This subpart was revised in the final regulations published on October 29, 2010 • These Subpart E regulations take effect July 1, 2012 • While SOME things changed, much remained the same

3. Required Policies (668.53) • You must have WRITTEN policies and procedures on: • Deadlines for submitting documentation • And the consequences for missing them • How you’ll notify students if verification changes the award • Required correction procedures • Procedures for referring overpayment cases

4. BUT WAIT! There’s more… • You must give each student selected “in a timely manner...a clear explanation of”: • Required documents • Student responsibilities • Deadlines for completion • Consequences of “failing to complete any required action”

5. Professional Judgment (New) • “An institution’s procedures must provide that an applicant whose FAFSA information is selected for verification is required to complete verification before the institution exercises any authority under section 479(A) of the [Higher Education Act] to make changes…(668.53(c))

6. Who Must Be Verified • Applicant selected by Central Processing System (CPS) or the school • CPS selected: The “SAR with the star” • Any application the school believes has either incorrect or discrepant information • As required under 668.54(a)(2) and 668.16(f) • Any additional application(s) the school selects • You can select ‘em all! (I do)

7. Limitation/Exclusions (New) • There will be NO MORE “30% verification cap!” • You can exclude: • Deceased applicant • Not a Title IV, HEA program recipient • “[E]ligible to receive only unsubsidized student financial assistance” • Verified by another school (with conditions) • Parents unavailable or mentally incapacitated • Spouse deceased/mentally incapacitated/unavailable (for independent students)

8. Important Caveat • “Conflicting Information” MUST ALWAYS be resolved, regardless of verification status. • “If your school has conflicting information concerning a student’s eligibility or you have any reason to believe a student’s application information is incorrect, you must resolve the discrepancies before disbursing FSA funds.” (2010-11 Application & Verification Guide (AVG), p. 106)

9. What Must You Verify? • If CPS-selected, you must CURRENTLY verify: • Household size • Number enrolled in college • Adjusted gross income (AGI) • U.S. income tax paid • Certain untaxed income and benefits • Legal citation: 34 CFR 668.56(a)

10. What Must You Verify Starting in 2012-13? • “For each award year the Secretary publishes in the Federal Register notice the FAFSA information that an institution and an applicant may be required to verify. • “For each applicant whose FAFSA…is selected…the Secretary specifies the specific information…that the applicant must verify.” (668.56(a) and (b))

11. What CAN You Verify? • “In addition to verifying these required items for CPS-selected students, you can choose to verify any other application items, requiring any reasonable documentation, in accordance with consistently applied institutional policies. You may decide which students must provide documentation for any additional data elements and what constitutes acceptable documentation.” (AVG-85)

12. Collecting Verification Information • You basically need to collect a properly signed verification worksheet or other properly signed documentation and • Signed copies of the appropriate tax returns • “You should remind your students that they must submit the completed worksheet and copies of the relevant income tax returns…to your financial aid office, not to the [U.S.] Department of Education.” (AVG-85)

13. Verifying Household Size • “If the student completed the Department’s verification worksheet, no further documentation for this item is required.” (AVG-86) • Instead of the worksheet, you may accept a signed statement listing: • Names of household members • Their ages • Their relationship to the student

14. Verifying Household Size • You don’t have to verify this when: • It’s the same as reported and verified in the previous award year • You receive the SAR or ISIR within 90 days after the date the application was signed • For a dependent student, a married household size of 3 or a single-parent household size of 2 • For an independent student, a married household size of 2 or a single household size of 1

15. Verifying Number in College • “If the student completes the Department’s verification worksheet, no further documentation for this item is required.” (AVG-86) • Instead of the worksheet, you may accept a signed statement listing: • The names and ages of those enrolled • The names of the schools they plan to attend

16. Verifying Number in College • You don’t have to verify this when: • The reported number enrolled is 1 (the student) • You receive the SAR or ISIR within 90 days after the date the application was signed • The family members listed are enrolled at least half-time at your school, and you’ve confirmed their enrollment internally

17. Verifying AGI and U.S. Income Tax Paid • “To verify AGI and taxes paid, you must first identify everyone whose financial data was reported on the FAFSA and which tax returns, if any, they filed. You must check the tax returns for anyone whose financial data were reported on the FAFSA: the student and his spouse or parents if applicable…The type of [tax return filed] reported on the FAFSA should match what the student and parents actually filed.” (AVG-87)

18. Verifying AGI/Taxes Paid • “For verification purposes, you can accept a copy (such as a photocopy, fax, or digital image) of the original signed return filed with the IRS. • “If a fax, photocopy, or other acceptable copy was made of an unsigned tax return, the filer (or at least one of the filers of a joint return) must sign the copy. • “You can [also] accept a tax form that has been completed to duplicate the filed return; [it] must contain at least one filer’s signature.” (AVG-87)

19. Verifying AGI/Taxes Paid • You may also accept a paper return on which the preparer has stamped, typed, signed or printed his/her name (NOT the company’s name) and his/her SSN, EIN (Employer ID Number), or PTIN (Preparer Tax ID Number). • You may also accept a copy of an IRS form with tax information mailed directly to your school by the IRS. • If mailed to you by the filer(s), must have a filer’s signature

20. Special Tax Filing Situations • These include (from AVG-88 & 89): • Electronic filers • Non-filers • Filing extensions • Fiscal year tax returns • Nonresident filers • Foreign income • Tax return not available • Tax transcript or copy of tax return

21. What Will Change in 2012-13? • Section 668.57 addresses “Acceptable documentation” • It references four areas: • “Adjusted Gross Income (AGI), income earned from work, or U.S. income tax paid • “Number of family members in household • “Number of family household members enrolled in eligible postsecondary institutions • “Other information”

22. Verifying Untaxed Income and Benefits • Three specific types must currently be verified: • Child support • IRA/Keogh deductions • Interest on tax-free bonds

23. Verifying Untaxed Income and Benefits • “In addition, you must verify all other untaxed income reported on the U.S. individual income tax return (excluding schedules).” (AVG-90) • ANY untaxed income and benefits that must be reported on the FAFSA are subject to verification.

24. Verifying Untaxed Income and Benefits • “Except for child support, the required items can be verified using the tax return or alternative tax documents. • “Non-filers should submit a signed statement confirming that they did not file a tax return and listing the amount and specific sources of untaxed income and benefits by name.” (AVG-90) • Untaxed income and benefits from any governmental source, granted on the basis of a financial need assessment, need not be verified.

25. Verifying Child Support Received • MUST verify if reported or you believe it was received but not reported • Completed verification worksheet sufficient • If questions, can request: • Copy of divorce decree/separation agreement • Signed statement from the parent who’s paying • Copies of cancelled checks/money order receipts

26. Verifying IRA/Keogh Deductions • Verified using the tax return • Applicable line items appear on page 1 of both Form 1040 and Form 1040A

27. Verifying Interest on Tax-Free Bonds • Verified using the tax return • Applicable line items appear on page 1 of both Form 1040 and Form 1040A

28. Various and Sundry • You can make interim disbursements of aid while verification is pending • One disbursement of Pell/Perkins/FSEOG • Up to 60 days employment for FWS • Can originate DL, but can’t disburse • A student can be selected for verification AFTER a disbursement has been made • Caused by subsequent CPS transaction • May cause repayment of previously disbursed aid

29. Various and Sundry • There is a current verification tolerance of $400 • Allowance for “minor errors” that don’t affect eligibility • How to determine tolerance: • Add original (incorrect) AGI and untaxed income; subtract original U.S. income tax paid • Do the same for the correct values • If original total vs. corrected total is $400 or less, no need to correct (but can ) • NO tolerance for non-dollar items (e.g., HH size)

30. Changes for 2012-13 • 668.59(a): “For the subsidized student financial assistance programs, if an applicant’s FAFSA information changes as a result of verification, the applicant or the institution must submit to the Secretary any changes to— • (1) A nondollar item; or • (2) A single dollar item of $25 or more.”

31. “Subsidized Student Financial Assistance Programs?” • Defined in 668.52 • “Title IV, HEA programs for which eligibility is determined on the basis of an applicant’s EFC.” • Federal Pell Grant • Federal SEOG • Federal Work-Study • Federal Perkins Loan • Direct Subsidized Loan

32. Various and Sundry • “A Pell applicant selected for verification must complete the process by the deadline published in the Federal Register. [For 2010-2011] the deadline is expected to be September 26, 2011, or 120 days after the last day of the student’s enrollment, whichever is earlier. Campus-based …applicants must complete verification by the same deadline or by an earlier one established by your aid office.” (AVG-94)

33. Various and Sundry • Late Disbursements • “Generally a student ceases to be eligible for aid once he has finished the term and is no longer enrolled. However, he may submit verification documentation and receive a late disbursement after that time if the Department processed a SAR or ISIR with an official EFC while he was still enrolled.” (AVG-94)

34. Correcting, Updating and Adjusting • You can correct anything incorrectly reported on the original FAFSA submission • Only a few answers from the FAFSA can be updated to reflect changes after the FAFSA was signed • You can use your professional judgment to adjust reported information to account for special circumstances

35. Correcting • Three options with correcting: • Error doesn’t affect eligibility • Correction increases eligibility • Correction decreases eligibility • Guidance contained in AVG-101 and 102

36. Updating • Only three items can currently be updated: • Household size • Must be updated to be correct at time of verification • Can only be updated if selected for verification • Number in college • Must be updated to be correct at time of verification • Can only be updated if selected for verification • Dependency status • Must update if this changes during award year • CANNOT be updated if due to change in marital status • Update must be performed even if not selected for verification

37. Updating in 2012-13 • 668.55(c): “An institution may require an applicant to update FAFSA information under paragraph (a) [dependency status] or (b) [household size/number in college] of this section for a change in the applicant’s marital status if the institution determines the update is necessary to address an inequity or to reflect more accurately the applicant’s ability to pay.”

38. Adjusting • “An aid administrator may use professional judgment (PJ), on a case-by-case basis only, to alter the data elements used to calculate the EFC. The alteration is valid only at the school making it.” (AVG-104) • CANNOT “…modify either the formula or the tables used in the EFC calculation…” • Document, document, document!!

39. Discrepant Tax Data • “…FAAs must have a fundamental understanding of relevant tax issues that can considerably affect the need analysis. You are obligated to know: (1) whether a person was required to file a tax return, (2) what the correct filing status for a person should be, and (3) that an individual cannot be claimed as an exemption by more than one person.” (AVG-107)

40. Required to File • For 2010, a tax return must be filed when: • Single filer under age 65 has gross income of at least $9,350 • Married filing jointly filers are both under 65 and have gross income of at least $18,700 • Married filing separately of any age and have gross income of at least $3,650 • Head of household under 65 and have gross income of at least $12,050 • Qualifying widow(er) with dependent child under 65 and have gross income of at least $15,050

41. Definition of “Gross Income” • “Gross income means all income you received in the form of money, goods, property and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it).” (IRS Publication 17, Your Federal Income Tax, p. 4)

42. Correct Filing Status • The IRS recognizes five filing statuses: • Single • Married Filing Jointly • Married Filing Separately • Head of Household • Qualifying Widow(er) With Dependent Child

43. Filing Status Definitions • “Your filing status is single if, on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree, and you do not qualify for another filing status.” (Publication 17, p. 20)

44. Filing Status Definitions • “You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.” (Pub. 17, p. 20)

45. Filing Status Definitions • “You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.” (Pub. 17, p. 20)

46. Filing Status Definitions • “You may be able to file as head of household if you meet all the following requirements: • You are unmarried or ‘considered unmarried’ on the last day of the year. • You paid more than half the cost of keeping up a home for the year. • A ‘qualifying person’ lived with you in the home for more than half the year (except for temporary absences, such as school).” (Pub. 17, p. 21)

47. HoH Filing Status Definitions • How is one “considered unmarried?” • Five tests: • You file a separate return • You paid more than half the cost of keeping up your home for the tax year • Your spouse did not live in your home during the last 6 months of the tax year (does not include temporary absences) • Your home was the main home of your child, stepchild, or foster child for more than half the year • You must be able to claim an exemption for the child (Pub. 17, pp. 20-21)

48. HoH Filing Status Definitions • Who is a “qualifying person?” • It’s more complex than this, but basically, it’s a: • Son, daughter, or grandchild who lives with you more than half the year and meets certain other tests • Qualifying relative who is your father or mother • Qualifying relative other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) (Pub. 17, p. 22)

49. HoH Filing Status Definitions • What is a “temporary absence?” • “You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. It must be reasonable to assume that the absent person will return to the home after the temporary absence. You must continue to keep up the home during the absence.” (Pub. 17, p. 23)

50. Filing Status Definitions • “If your spouse died in 2010, you can use married filing jointly as your filing status for 2010 if you otherwise qualify to use that status. The year of death is the last year for which you can file jointly with your deceased spouse. • “You may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year your spouse died [if you have not remarried].” (Pub. 17, p. 23)