Reviewing Tax Returns for Verification
Purposes
David Gelinas
Senior Associate Dean &
Director of Financial Aid
Davidson College
What do we do?
 Perform 100% verification
 Require ALL pages of personal tax return
 Require all W-2s and 1099s
 Require student tax return and W-2s/1099s (all
pages)
 Optionally request business tax returns and
Schedule K-1s
Why do we do this?
 Early filing deadline
 Heavy use of estimated data by filers
 Variation between PROFILE and FAFSA data
 #1 source of assistance: Institutional funds
 Stewardship responsibility to school, federal
funding sources and state funding sources
What are we looking for?
 Inconsistencies between application (PROFILE
and/or FAFSA) data and tax return data
 Clues to questions we may need to ask
 Clues to other documents we might need to see
What are we looking at?
 References are to 2008 Form 1040
 Greatest number of opportunities for tax filer
to adjust income
 Greatest likelihood to find errors
 Greatest number of extra items reportable on
PROFILE
Starting with the basics
 Is this the tax return from the correct income year?
 Does it reflect the correct filing status?
 The ever-popular Head of Household issue
 If Married Filing Separately, did we get both returns?
 Are the exemptions consistent with the reported family
size?
 Don’t have to match, though
 One looks back (exemptions); the other looks
forward (household size)
Looking at the line items
 Line 7 (Wages, salaries, tips, etc.)
 Is this amount consistent with reported earnings on
PROFILE/FAFSA?
 Does this match what’s on Forms W-2?
 Lines 8a (Taxable interest), 8b (Tax-exempt interest) and 9a
(Ordinary dividends)
 Are these amounts consistent with what’s reported on
PROFILE/FAFSA?
 Is Schedule B required?
Looking at the line items (cont.)
 Line 12 (Business income or (loss))
 Is there a business asset reported on the
PROFILE/FAFSA? Should there be?
 Line 13 (Capital gain or (loss)) and Line 14
(Other gains or (losses))
 Are there potentially-reportable assets?
Looking at the line items (cont.)
 Line 15 (IRA distributions) and Line 16 (Pensions and
annuities)
 Were distributions (taxed and untaxed portions)
properly reported?
 Was there a rollover?
 Was this an exceptional circumstance? PJ?
 Line 17 (Rental real estate, etc.)
 Does this refer to a reportable asset?
 How do you treat losses if you use IM?
Looking at the line items (cont.)
 Line 18 (Farm income or (loss))
 Is this a reportable asset (FAFSA issue)?
 Line 20 (Social security benefits)
 Were taxed and untaxed portions properly
reported?
 Were dependent benefits properly reported?
 Line 21 (Other income)
 Anything of interest here?
Adjusted Gross Income
 Lines 23 through 35
 Some adjustments used for both FM and IM;
some for IM only
 Line 28 (Self-employed SEP, SIMPLE and
qualified plans) and Line 32 (IRA deduction)
 Were these correctly reported on
PROFILE/FAFSA?
Credits and Income Tax Paid
 Line 50 (Education credits)
 Were these properly reported?
 Is there Form 8863 to support these credits?
 Line 56 (Subtract line 55 from line 46)
 THIS line is “income tax for 2008”
 NOT Line 61 (total tax)
 Line 57 (Self-employment tax) is (somewhat)
accounted for in the EFC formula
Payments
 Line 64a (Earned income credit)
 Line 64b (Nontaxable combat pay election)
 Line 66 (Additional child tax credit)
 Line 70 (Recovery rebate credit)
 NONE of these are reportable as untaxed income
Accompanying Schedules
 Schedule A (Itemized Deductions)
 Line 1 (medical/dental expenses)
 Are excess expenses being itemized?
 Grounds for PJ treatment in FM?
 Accounted for under IM
 Lines 10 and 11 (mortgage interest)
 For IM purposes:
 In line with reported home value/debt?
 Does AGI show ability to support this expense?
Accompanying Schedules (cont.)
 Schedule C (Profit or Loss from Business (Sole
Proprietorship))
 Line 31 will appear as income on Form 1040,
Line 12
 Is the business being run out of the home? (Line
30)
 Add this deduction as untaxed income for IM?
 Should there be a business value reported on
the FAFSA?
Accompanying Schedules (cont.)
 Other Schedule C questions:
 What to do with car/truck expenses? (Line 9)
 Look at Part IV, Information on Your Vehicle
 Treatment of depreciation? (Line 13)
 Treatment of travel, meals and entertainment?
(Line 24)
 Anything of interest in Part V, Other Expenses?
Accompanying Schedules (cont.)
 Schedule D (Capital Gains and Losses)
 Appears on Form 1040, Line 13
 Lines 3 and 10 represent proceeds from sales
 Line 3: short-term (bought and sold in same calendar
year)
 Line 10: long-term (bought in prior calendar year; sold
in this one)
 Even if Line 10 shows a loss, does it represent a form
of income (IM only) in the current calendar year?
 Your thoughts?
Accompanying Schedules (cont.)
 Schedule E (Supplemental Income and Loss)
 Appears on Form 1040, Line 17
 Page 1 covers rental property and royalties
 Income received is reported on lines 3 and 4
 Expenses are reported on lines 5 through 18
 Depreciation is reported on line 20
 Add back in under IM?
Accompanying Schedules (cont.)
 Schedule E (cont.)
 Page 2 covers Partnerships, S Corporations, Estates
and Trusts, and REMICs
 Partnerships/S Corporations are listed on lines 28A
through 28D
 Questions under IM:
 Is this the family’s primary source of income?
 If not, how do you treat it?
 Allow losses? Add back in as untaxed income?
More on Schedule E
 To dig even deeper, you can request the
following:
 Form 1065 for Partnerships
 Form 1120-S for S Corporations
 Schedule K-1 for each shareholder
 Shows the shareholder’s specific share of the
income
Accompanying Schedules (cont.)
 Schedule F (Profit or Loss from Farming)
 Appears on Form 1040, Line 18
 Depreciation is reported on Schedule F, Line 16
 Add back in under IM?
 Questions under IM:
 Is this the family’s primary source of income?
 If not, how do you treat it?
 Allow losses? Add back in as untaxed income?
In Conclusion
 Where you stand on this level of verification depends on
the seat you’re sitting in
 Mostly (or entirely) state and federal aid? NAH!
 High volume of applications? PROBABLY NOT
 Heavily institutional aid? ABSOLUTELY!
Credit where credit’s due
 To Kalynn Wilczynski, formerly of Emory
University
 To my many colleagues over the years who keep
asking for this presentation
 To my applicant families for providing a never-
ending stream of raw material
Thank you for coming today!