Does the FA-DDX Include Amended Tax Return Data?

This AskRegs Knowledgebase Q&A was updated on April 18, 2024 to reflect new guidance published by the U.S. Department of Education (ED) in the April 1, 2024 Electronic Announcement (GENERAL-24-29) and edits to the Application and Verification Guide (AVG) volume of the FSA Handbook as noted in April 17, 2024 Electronic Announcement (GENERAL-24-44) which changed previous guidance regarding amended tax return data transferred to the FAFSA via the FUTURE Act Direct Data Exchange (FA-DDX).

No. Federal tax information (FTI) from an amended tax return will not be transferred to the FAFSA via the FUTURE Act Direct Data Exchange (FA-DDX). In GENERAL-24-29, ED reversed previous guidance related to the transfer of amended tax return data from the Internal Revenue Service (IRS) to the FAFSA via the FA-DDX. Previously ED had indicated that if a 1040-X amended tax return was filed and processed by the IRS before the FAFSA was filed, and if federal tax information (FTI) is successfully transferred, the FAFSA will contain the amended tax return data. This is not the case.

In GENERAL-24-29, ED reported that there was an inconsistency in FTI transferred to the FAFSA which involved adjusted gross income (AGI) and filing status. ED stated “Currently, in cases in which taxpayer information is updated through an amended tax return or other adjustments, the FA-DDX is transferring the most recent AGI and filing status and the original values for other tax return elements.” Because of this inconsistency, ED plans to reprocess affected FAFSAs. The IRS has since updated the FA-DDX to include only consistent tax data from the taxpayer’s original tax return. Going forward, the FA-DDX will not include amended or updated FTI. ED states that instead the FA-DDX will use the original FTI “consistent with the methodology used by the Data Retrieval Tool (DRT) for past years of the FAFSA. However, unlike in past years of the FAFSA, under the DRT, the 2024-25 ISIR does not include the flag indicating that an amended tax return was filed.”

ED went on to state that it “only intends to reprocess FAFSAs when the corrected data and calculations would reduce students’ student aid index (SAI), increasing their eligibility for financial aid.” Schools may use professional judgment (PJ) to determine, on a case-by-case basis, whether to proceed with packaging based on the current ISIR when a reprocessed ISIR is expected to increase a student’s SAI and reduce aid eligibility. However, schools may elect to request that ED reprocess the application and deliver an updated ISIR transaction to the school.

In GENERAL-24-44, ED announced changes to the Application and Verification Guide (AVG) volume of the 2024-25 FSA Handbook which include updated information related to the revised guidance for amended tax data. See “Filers of Amended Returns” in the AVG, Chapter 4 which states:

“Students or parents who file an amended return (IRS Form 1040-X) and provide consent and approval to retrieve FTI via the FA-DDX will not have their amended information transferred to the FAFSA form. The IRS will transfer only original tax information to the FAFSA form via the FA-DDX. However, there is currently no indicator on the FAFSA form that the tax return was amended and the original data may be inaccurate. If you are aware that an applicant or contributor filed an amended return, you may, but are not required to, use your discretion to update or correct the applicant’s FAFSA form. If your school chooses to correct the student’s FAFSA to use amended tax information instead of the original tax information transferred via the FA-DDX, you will need to check the PJ flag on the corrected ISIR transaction to force FPS to use the manually entered FTI (instead of the FTI received via the FA-DDX) to calculate the student’s SAI and Pell Grant eligibility. If the applicant is selected for verification, you may still consider the FTI transferred from the IRS to be verified and are not required to collect documentation.

Applicants or contributors unable to provide FTI via the FA-DDX may submit a signed copy of the 1040-X form that was filed and one of the following documents to complete verification:

• Updated income and tax information from the IRS on an ISIR record with all tax information from the original tax return;
• A transcript obtained from the IRS that lists 2022 tax account information of the tax filer(s); or
• A signed copy of the 2022 IRS Form 1040 and the applicable schedules that were filed with the IRS.

Because the Tax Return Transcript does not reflect changes to the original return by the filer or the IRS, it is, by itself, not sufficient.

When an amended return was filed, you must submit any changes to nondollar items and to single monetary items of $25 or more.

Note that there may be instances when a student, spouse, or parent did not file a 1040-X with the IRS but had their tax and income information amended by the IRS. In such a case a school may accept one of the items mentioned above plus documentation showing the IRS’s change(s).”

According to the September 19, 2023 Federal Register and GEN-23-12, if FTI is pulled in via the FA-DDX and is unchanged, the school can consider those data elements to be verified. There will no longer be an IRS Request Flag of "07" or any other indicator to alert the school of an amended tax return or IRS corrections. There will not be any postscreening process to pick up amended tax returns that were filed after FA-DDX was used, or corrections were made by the IRS. There is no requirement to actively ask whether a student or contributor filed an amended tax return or the IRS corrected the data.

As a general rule, the school will only need to follow up and verify the amended tax information when they find out on an ad hoc basis that an amended tax return was filed after the FAFSA was filed. This would still be conflicting information that needs to be resolved. Otherwise, you follow the verification requirements for regular, non-amended tax filers.

Note the IRS tax return processing timeframes.

Update Note: This AskRegs Q&A was previously based on guidance prior to ED's April 1, 2024 Electronic Announcement (GENERAL-24-29).