U.S. Department of Education Reinstates IRS Data Retrieval Tool
The U.S. Department of Education will restore access to the IRS Data Retrieval Tool on October 1, 2017, the start of the filing season for the 2018-2019 Free Application for Federal Student Aid (FAFSA). The U.S. Department of Education previously shut down access to the IRS Data Retrieval Tool on March 3, 2017 because of security concerns.
Hackers used the IRS Data Retrieval Tool in late 2016 and early 2017 to perpetrate a form of income tax refund fraud. The IRS authenticates the identity of online tax return filers using the taxpayer’s adjusted gross income (AGI) from the previous year’s federal income tax return. Hackers were able to obtain AGI information using the IRS Data Retrieval Tool. They filed about 8,000 bogus federal income tax returns before the IRS Data Retrieval Tool was shut down, yielding about $30 million in fraudulent refunds.
Access to the IRS Data Retrieval Tool was restored for income-driven repayment applicants June 2, 2017, after the U.S. Department of Education implemented several security improvements.
In a technical memo published on August 7, 2017, the U.S. Department of Education announced that access to the IRS Data Retrieval Tool will be restored on October 1, 2017 for the 2018-2019 FAFSA.
The security solution encrypts the data transferred from the IRS to the FAFSA. The income and tax information no longer will be visible to the taxpayer and applicant on the IRS Data Retrieval Tool and FAFSA web pages. Instead, information that has been transferred by the IRS Data Retrieval Tool will display the words “Transferred from the IRS” in applicable data entry fields on the online FAFSA and student aid report (SAR).
This change will have several consequences for students and parents.
- Corrections. Students and parents no longer will be able to make corrections to transferred data themselves. Instead, they will need to ask the college financial aid office to make corrections, if necessary. For example, if a student or parent files an amended income tax return, they will need to provide a copy of the amended income tax return to the college’s financial aid office.
- Rollovers. The FAFSA includes questions about the untaxed portions of IRA distributions and pension distributions. The data from the IRS Data Retrieval Tool does not distinguish between rollovers, which should be excluded, and a tax-free return of contributions, which should not. Accordingly, if the IRS Data Retrieval Tool transfers a non-zero figure into these fields, the applicant or parent will be asked whether the figure includes a rollover. If they answer “yes,” they will be asked to provide the amount of the rollover.
- Income Earned from Work. Taxpayers who file joint federal income tax returns no longer will be able to use the IRS Data Retrieval Tool to transfer their combined income earned from work information into the FAFSA. Instead, they will need to enter this information manually. Taxpayers who file separate returns will continue to be able to transfer their income earned from work information using the IRS Data Retrieval Tool.
- Verification. If a student or parent is a tax filer and AGI transferred from the IRS is zero, but income earned from work is greater than zero, the FAFSA will be flagged for verification. If any of the data elements in the Additional Financial Information and Untaxed Income sections of the FAFSA is greater than the AGI transferred using the IRS Data Retrieval Tool, the FAFSA will be flagged for verification.
Even with these changes, the IRS Data Retrieval Tool will save families time and hassle. Any data elements that are transferred unmodified from the IRS to the FAFSA will not be subject to verification.