Posted Date:August 7, 2017
|Author:||Craig Munier, Assistant Director, Policy Liaison and Implementation, Federal Student Aid
Lisa DiCarlo, Director, Student Experience Group, Federal Student Aid
Subject: Changes to the IRS Data Retrieval Tool Process for the 2018-19 FAFSA® Form
In a May 3, 2017 Electronic Announcement, we informed the community that in an effort to address privacy and security concerns raised by the Internal Revenue Service (IRS) related to the IRS Data Retrieval Tool (IRS DRT), the IRS and Federal Student Aid (FSA) agreed to implement a solution that will reinstate the use of the IRS DRT beginning with the 2018–19 Free Application for Federal Student Aid (FAFSA) cycle. This Electronic Announcement provides detailed guidance regarding that solution and its impact on the important work done by postsecondary institutions.
Functionality Prior to the IRS DRT Shutdown
Prior to the shutdown of the IRS DRT on March 3, 2017, most online FAFSA applicants and parents were provided the option to link to an IRS website and, once authenticated, could view their tax return information and transfer it back into the FAFSA form. Transferred tax return information was displayed to the applicant or parent and labeled with “Transferred from the IRS” next to the data entry fields on the FAFSA form. IRS Display Flags were set on the Institutional Student Information Record (ISIR) to inform financial aid administrators of the applicant’s or parent’s eligibility to use the IRS DRT. IRS Request Flags were set on the ISIR to indicate whether the applicant or parent linked to the IRS, transferred their tax information, and once transferred, whether the information was changed by the applicant or parent before submission of the FAFSA form.
2018–19 Changes to the FAFSA IRS DRT User Experience
To enhance the security and privacy of the sensitive personal data transferred into the FAFSA form from the IRS, the new solution will encrypt the applicant’s or parent’s information and hide it from view on both the IRS DRT website and on the FAFSA web pages.
FAFSA applicants and parents who are eligible to use the IRS DRT will still be provided the option to link to the IRS and retrieve their tax information from the IRS. Once on the IRS DRT website, applicants and parents will proceed through the usual authentication process and once authenticated, will be provided a list of all the possible fields from a tax return that could transfer back into the FAFSA form. However, applicants and parents will not be able to view their tax return information on the IRS DRT web page. If an applicant or parent agrees to transfer his/her data back into the FAFSA form, the applicant or parent will also not be able to view the transferred income and tax information on the FAFSA web pages. Instead of the transferred information, applicants and parents will see the words “Transferred from the IRS” in the data entry fields throughout the online FAFSA form and on the Student Aid Report (SAR). The transferred information will still be provided on ISIRs that are sent to schools and state grant agencies. Because the transferred information is not displayed, applicants and parents will be unable to make any corrections to the IRS DRT transferred items on the FAFSA form before or after submission. Institutions will continue to be able to make any necessary corrections. Refer to the “Corrections” section below for more detailed guidance.
Since applicants and parents will be unable to see the information that was transferred from the IRS, it is necessary to make changes to how IRA and pension rollovers and income earned from work are reported in the online FAFSA form.
- Rollovers: If an amount greater than $0 is transferred from the IRS into the Untaxed Portions of IRA Distributions field or the Untaxed Portions of Pensions field in the FAFSA form, the applicant or parent will be required to answer a new question about whether or not that amount includes a rollover. If the applicant or parent answers “yes,” he/she will be required to provide the amount of the rollover in a new entry field. Our system will then subtract the user-reported rollover amount from the amount of the IRA or Pension distribution that was transferred from the IRS, and the result will be used in the calculation of the applicant’s expected family contribution (EFC).
- Income Earned From Work: Because IRS-transferred information will not be displayed, applicants and parents who filed a joint tax return will no longer be able to transfer their combined income earned from work into the FAFSA form from the IRS DRT website. These joint filers will now be required to enter their income earned from work manually. Single applicants and single parents will continue to have their income earned from work transferred from the IRS into their FAFSA form.
New and Changed IRS Request, Display, and Data Field Flags
The 2018–19 EDE Technical Reference that was posted to the Information for Financial Aid Professionals (IFAP) website on July 10, 2017, defines the values of the IRS Request Flags, the IRS Display Flags, and the new IRS Data Field Flags. Flags are provided separately for student and parent fields. We have also included that information in two appendices to this Electronic Announcement.This section will
provide additional guidance on the IRS Request Flag with a value of 06;
explain the addition of a new IRS Request Flag with a value of 07;
give details regarding the removal of the IRS Display Flag value of H; and
describe the addition of a new set of IRS Data Field Flags.
IRS Request Flag Value of 06
This existing flag is set when, based on information provided by the applicant or parent on the online FAFSA form, the applicant or parent was eligible to use the IRS DRT and data was transferred from the IRS, but after submission of the FAFSA, a subsequent change made the applicant or parent ineligible to use the IRS DRT. For example, an applicant reported on her FAFSA form that she was married as of 02/2007 and filed a joint tax return. She used the IRS DRT to transfer information from that joint tax return into her FAFSA form. She then subsequently corrects her marital status date to 02/2017 and becomes ineligible to use the IRS DRT. This correction to her marital status date means that she was not really eligible to use the IRS DRT initially, and therefore, the tax return information provided on her FAFSA form is very likely inaccurate.
If an institution receives an ISIR with an IRS Request Flag value of 06, it must contact the applicant or parent, as applicable, to determine if the income tax return information that was transferred into the FAFSA form is correct (e.g., does it include information for the correct parties) given the changes the applicant or parent made to IRS DRT eligibility criteria, and make any necessary changes to the applicant’s record.
IRS Request Flag Value of 07
Based on feedback from the community and through our own data analysis, we believe that some applicants and parents incorrectly self-identify that they filed an amended tax return, resulting in their being ineligible to use the IRS DRT. In addition, some applicants and parents who filed an amended tax return do not indicate this on their FAFSA form. Therefore, for both applicants and parents, we are removing the filtering question on the FAFSA form related to filing an amended tax return so that, if otherwise eligible, they will be able to use the IRS DRT.
There will be a new IRS Request Flag with a value of 07 that indicates that the applicant or parent filed an amended tax return. This flag will be set when the applicant or parent links to the IRS, successfully authenticates, chooses to transfer his/her information into the FAFSA form, and the IRS determines that the tax filer has an amended return on file for the relevant tax year (2016 for the 2018–19 FAFSA). However, the income and tax information that is transferred from the IRS will be from the originally filed tax return and will not include changes that were made on the amended tax return (IRS Form 1040X).
If an institution receives an ISIR with an IRS Request Flag value of 07, it must contact the applicant or parent, as applicable, and make any necessary changes to any of the data items, regardless of whether those items are required to be verified.
IRS Display Flag of H
The IRS Display Flag is used to indicate whether the applicant or parent was provided the option to use the IRS DRT. Because we will now provide the IRS Request Flag value of 07 (amended return), we have removed the IRS Display Flag value of H, which indicated that the applicant or parent self-reported having filed an amended tax return so the IRS DRT option was not displayed.
IRS Data Field Flags
To help financial aid administrators know what, if any, specific information was changed once retrieved from the IRS and transferred into the FAFSA form, we will provide a new set of IRS Data Field Flags on ISIRs. Flags are provided separately for student and parent IRS-related data fields that can be transferred from the IRS. Below is a list of IRS Data Field Flag values for the 2018–19 FAFSA processing cycle.
- Blank = IRS data not transferred from the IRS (when FAFSA transaction submitted via paper or by a financial aid administrator)
- 0 = IRS data not transferred from the IRS (when FAFSA transaction not submitted via paper or by a financial aid administrator)
- 1 = IRS data transferred from the IRS – Field not changed by the user
- 2 = IRS data transferred from the IRS – Field changed by the user prior to submission of the application (can only occur for IRA and Pension fields that were changed as a result of the user entering a rollover amount)
- 3 = IRS data transferred from the IRS – Field corrected by the user on this transaction
- 4 = IRS data transferred from the IRS – Field corrected by the user on a previous transaction
As noted, the purpose of these Data Field Flags is to allow financial aid administrators to know the status of each IRS DRT item that was transferred into the FAFSA form. Our longstanding guidance is that if an applicant who was selected for verification had used the IRS DRT and none of the transferred information had been changed (either prior to initial submission of the online FAFSA form or by submission of a later change), institutions could consider all of the information transferred from the IRS to have been verified. Institutions would know if this condition existed if the value of the current IRS Request Flag was 02 (see Appendix A). Any other value would require the institution to complete verification using defined acceptable documentation.
Institutions had suggested to us that in instances where the IRS Request Flag was not 02, it would be helpful to know which IRS DRT data item or items had been changed and which had not. Providing this information would allow institutions to limit their requests for verification to only the changed data, thus reducing both institutional and family burden. The new IRS Data Field Flags, noted above, will allow for that determination. For each data item that was retrieved from the IRS, a Data Field Flag value of 1 means that the information retrieved from the IRS was not changed.
As stated earlier in this electronic announcement, applicants will not be able to make corrections to any of the data items that were transferred into their FAFSA form using the IRS DRT. Therefore, corrections to these fields will need to be performed by a financial aid administrator. Because the data came directly from the tax return filed by the applicant or parent and because income and tax items cannot be updated, we do not expect that there will be a need to make many corrections to these items. Examples of instances when a financial aid administrator might be required to make corrections include if (1) the tax filer did not report an IRA or pension rollover properly, (2) it has been determined that the tax filer should not have been allowed to use the IRS DRT, and (3) the tax filer had filed an amended tax return. These are described in more detail earlier in this electronic announcement. Institutions must consider whether any request from an applicant or parent for a correction to IRS DRT data is necessary and if so, make the needed corrections.
Web Edits and SAR Comments
When an applicant completes a FAFSA form online, edits are performed just prior to submission. When triggered, these edits require online confirmation or correction of the information that caused the edit to display. Beginning with the 2018–19 FAFSA, because information transferred from the IRS does not display to the applicant or parent (nor can corrections be made), any web edits that include information transferred from the IRS will no longer be presented to the applicant or parent. Instead, new SAR comments will display on the ISIR (and SAR) to alert financial aid administrators that at least one edit was triggered but could not be displayed to the applicant or parent and therefore, could not be resolved online. The comment codes are 400 (for parents) and 401 (for applicants).
400 = Your Financial Aid Administrator may contact you to resolve any issues related to parental data reported on your FAFSA.
401 = Your Financial Aid Administrator may contact you to resolve any issues related to data reported on your FAFSA.
While the actual comment text is generic, resolution depends on which edit or edits were triggered. Reasons why Comment Code 400 or 401 might be generated include the following:
For Dependent Students and Independent Students
Student is a tax filer (FAFSA Question 32) and the AGI retrieved from the IRS is zero, but the total income earned from work (FAFSA Questions 39 and 40) is greater than zero.
The total of the Additional Financial Information fields reported on the FAFSA form (FAFSA Questions 44a-f) is greater than the AGI transferred from the IRS.
Any item from the FAFSA list of Untaxed Income (FAFSA Questions 45a-j) is equal to or exceeds the AGI transferred from the IRS.
For Parents of Dependent Students
Parent is a tax filer (FAFSA Question 80) and the AGI retrieved from the IRS is zero, but the total income earned from work (FAFSA Questions 88 and 89) is greater than zero.
The total of the Additional Financial Information fields reported on the FAFSA form (FAFSA Questions 93a-f) is greater than the AGI transferred from the IRS.
Any item from the FAFSA list of Untaxed Income (FAFSA Questions 94a-i) is equal to or exceeds the AGI transferred from the IRS.
To ensure that correct information is used to determine the applicant’s Title IV eligibility, when Comment Code 400 or 401 appears on an ISIR, the institution must review the relevant data items for all possible conditions noted above. In many instances, this review may require contacting the student or parent and obtaining documentation to support the accuracy of the information. If the information is determined to be incorrect, institutions must submit corrections.
Special Note: Sometimes there are reasons other than those outlined in this section why Comment Code 400 or 401 may appear on an ISIR. Those technical reasons do not require follow up by an institution. Therefore, once an institution has reviewed each of the conditions discussed above, it need not take any further action.
We thank the community in advance as we address the very important issue of providing access, simplification, accuracy, and burden reduction while also protecting the privacy of taxpayer information and the integrity of our tax system.