Has anyone else been told they couldn't get aid because of tax return errors?

Paying for College
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<p>Hey everyone. I'm a current Yale student (rising junior). My parents are divorced, and my dad pays my mom some alimony every month. Because my dad counts some life insurance payments (that he makes to an insurance policy, under court order, that would pay out if my mom died) as alimony and my mom doesn't, the numbers my dad reports for alimony on his tax return are about 15% higher than the numbers my mom reports. The difference has always been small enough so that the IRS doesn't notice or care.</p>

<p>However, when I applied for financial aid at Yale this year, I was informed that they couldn't give me any financial aid because of this discrepancy. Not just reduce the amount, or give me a different kind of aid- they said that they had to deny ALL financial aid, of any sort, period, end of story. Since there's absolutely no way me or my dad could come up with the nominal $100,000 fee to finish my education (that's several times more money than I've made in my entire life thus far), this would essentially mean expelling me, even though I have a 3.7 GPA and no drug or other offenses.</p>

<p>Luckily, although my mom refused to amend her return (even though she knew I would have to leave college if one of my parents didn't), my dad said he would, after much wailing, gnashing of teeth and consulting with lawyers and CPAs. But what if he hadn't? How could you reasonably call it "fair" to, essentially, expel students from their college because of a tax paperwork mistake that their parents made, that they have no control over? Has anyone else experienced this?</p>

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<p>I never experienced anything like this – but my ex husband doesn’t pay me alimony, and neither of my kids attended Yale – and I agree with you it makes no sense to deny you aid entirely based on a discrepency between the two sets of figures. The numbers could easily disagree simply because timing of end of year payments-- or any other sort of accounting error. </p>

<p>It seems to me that its a wash in any case – money your dad pays to your mom is a deduction from his income and an addition to hers – and if the college needs a figure, it should just opt for the higher one and figure an award accordingly. </p>

<p>I’m sorry you had to deal with this – I certainly don’t think it is reasonable and it certainly raises some questions about Yale’s financial aid practices. It is very typical that divorced parents do not have access to each others’ tax returns and there is a possibility of all sorts of legal discrepencies because of errors or conflicting tax advice one parent or another may be getting – so I would think that the college would have some flexibility. The logical thing would be to figure out the award based on whatever set of numbers were least favorable to the student, and then give the student a letter explaining what was done and what documentation needs to be provided in order to get an improved award.</p>

<p>I’d note that my ex husband was chronically late in getting tax info to my d’s school, and year after year they worked with me on it – they made it clear they needed his return in hand, but they went ahead and wrote each year’s award based on estimates from the previous year.</p>

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<p>I’m going to have to disagreee here. Your parents most definitely have control over what numbers they put on their return. No reputable accountant is going to put two different numbers as alimony paid and received. The IRS will eventually match it, and they do care. I don’t know why you expected your mother to be the one to change her return. I can see why she doesn’t want to pay tax on money she did not receive. I can also see why Yale would refuse to grant financial aid based on your father’s return that is not accurate.</p>

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<p>The reality is that Yale considers the income and assets of BOTH parents when determining the awarding of financial aid. Something tells me there is more to the story than an inconsistency on the tax returns. For Yale to offer you NO financial aid, either that inconsistency was very significant in dollar amounts OR your dad’s income/assets reporting on the Profile non-custodial parent form went up substantially.</p>

<p>In any event, I agree with the poster who says the IRS DOES care…and therefore so should the colleges. When they verify financial aid awards (and these very generous schools often require the tax returns as part of the financial aid process), they expect them to make sense. If they don’t…they expect a GOOD explanation as to why.</p>

<p>My question…you are a rising junior. Did your parents get divorced THIS year? If not, was this the same “inconsistency” on past tax returns? You should check to see if this is the case. </p>

<p>If the combined income of your two parents exceeds a certain amount, you would not get a lot of aid from Yale regardless. I’m wondering if this is the case.</p>

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<p>It would seem that the IRS should have made the final decision as to how this part of alimony should be handled - either with the mom changing her return or the dad.</p>

<p>I wonder what the legal way would have been? It does seem a bit odd…it sounds like the dad has to pay the life insurance premiums (thru his job maybe???), and the mom doesn’t feel that that is “income” to her. </p>

<p>BTW…how much could the annual premiums be that it would affect tax returns that much? How much could have the mom likely owed? Sounds like a deal could have been made with that - such as the dad writing the check for that amount? If the mom is lowish income and the premiums are - say - 1200 a year - her taxable amount may have been very little. Certainly not high enough to forgo Yale aid.</p>

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<p>The final decision on whether the premiums are deductible as alimony is determined by the divorce decree. </p>

<p>From the IRS website:

</p>

<p>Also:

</p>

<p>So both spouses should have known which way it should be handled. And no, if it is not considered alimony, they cannot just put it on the wife’s return to reduce the tax liability.</p>

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<p>Plus what happened the first two years this kid was in college. Are the parents NEWLY divorced?</p>

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<p>I have never personally experienced it but I do know, from postings from a financial aid officer that frequents these boards, that incorrect tax returns will cause financial aid to be denied.</p>

<p>It is perfectly fair. Financial aid is based on the family’s financial information and that is largely based on tax returns. If the tax returns are blatantly incorrect then how can the FA officer rely on the data provided. I believe for FAFSA purposes FA officers are required to refuse to accept it if it contains obvious invalid data.</p>

<p>And as others have said - your parents do control what they put on their tax returns to a certain extent. They are required to report data correctly.</p>

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<p>“Your parents most definitely have control over what numbers they put on their return.”</p>

<p>By “they” I meant the student. The student has no control over what their parents do on their taxes. Why should they be punished for the sins of their parents?</p>

<p>“No reputable accountant is going to put two different numbers as alimony paid and received.”</p>

<p>Of course, but my parents mostly don’t talk to each other and use different accountants.</p>

<p>“The IRS will eventually match it, and they do care.”</p>

<p>My parents have been doing this since 2005, and they haven’t heard a peep from the IRS. I mean, really… is the IRS going to take the trouble to audit them over a lousy few thousand bucks in deductions, amounting to maybe a $500 difference in taxes paid?</p>

<p>“I don’t know why you expected your mother to be the one to change her return.”</p>

<p>Because hers was, in fact, wrong (so far as I and the CPA can tell). According to IRS Publication 18 ([Publication</a> 17 (2009), Your Federal Income Tax](<a href=“Publication 17 (2022), Your Federal Income Tax | Internal Revenue Service):%5DPublication”>Publication 17 (2022), Your Federal Income Tax | Internal Revenue Service):)</p>

<p>“Life insurance premiums. Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy.”</p>

<p>“The reality is that Yale considers the income and assets of BOTH parents when determining the awarding of financial aid.”</p>

<p>Yes, I know that. I have no problem with me counting my father’s income and assets. I DO have a problem (I think justifiably so) with them denying ALL aid whatsoever because of a minor discrepancy on a form.</p>

<p>“For Yale to offer you NO financial aid, either that inconsistency was very significant in dollar amounts OR your dad’s income/assets reporting on the Profile non-custodial parent form went up substantially.”</p>

<p>The inconsistency was a few thousand dollars (15% of alimony paid, and my parents are middle-class), so I wouldn’t call it “significant”. I have personally seen my dad’s tax returns and noncustodial PROFILE, and can assure you that the second isn’t the case either.</p>

<p>“In any event, I agree with the poster who says the IRS DOES care…and therefore so should the colleges.”</p>

<p>To repeat what I said earlier: My parents have been doing this since 2005 and the IRS hasn’t said anything to either of them. The IRS is not going to audit them over a few hundred dollars in taxes. </p>

<p>"Did your parents get divorced THIS year? If not, was this the same “inconsistency” on past tax returns? You should check to see if this is the case. "</p>

<p>No, my parents separated in 2003 and got divorced several years later. Yes, the inconsistency in their returns goes back to 2005. Yale didn’t care last year, but now they do for some reason, I don’t know why.</p>

<p>“If the combined income of your two parents exceeds a certain amount, you would not get a lot of aid from Yale regardless. I’m wondering if this is the case.”</p>

<p>It is not. My parents are middle-class, and last year I paid less than 30% of Yale’s nominal prices. As I said, me and my dad couldn’t possibly come up with the $100,000 to finish my education without aid- we simply don’t have the money.</p>

<p>“It would seem that the IRS should have made the final decision as to how this part of alimony should be handled - either with the mom changing her return or the dad.”</p>

<p>I agree, but the IRS is extremely slow on such things, and by the time they resolved it I would already have been forced to leave Yale.</p>

<p>"It does seem a bit odd…it sounds like the dad has to pay the life insurance premiums (thru his job maybe???), and the mom doesn’t feel that that is “income” to her. "</p>

<p>That’s correct.</p>

<p>"Sounds like a deal could have been made with that - such as the dad writing the check for that amount? If the mom is lowish income and the premiums are - say - 1200 a year - her taxable amount may have been very little. Certainly not high enough to forgo Yale aid. "</p>

<p>True, but you overestimate the reasonableness of my parents. My mom is a young-earth creationist and has been diagnosed as mentally ill by a local psychiatrist.</p>

<p>"Plus what happened the first two years this kid was in college. Are the parents NEWLY divorced? "</p>

<p>No, they aren’t. The same discrepancy was there last year and Yale didn’t care. I don’t know why either.</p>

<p>Also, why do you refer to me as “kid”? I am a legal adult. I live on my own. I hold down a middle-class job during the summer. I run a website with 10,000 or so unique visitors a day in my spare time, and also do professional writing and journalism for a few different organizations. My mom (my custodial parent) contributes not one cent to my education or living expenses, and although some of my other relatives do chip in, I could pay for everything without any help from anyone if I had to. Is everyone in college just automatically a “kid”, regardless of how mature they are?</p>

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<p>Yes, you are a legal adult in ALMOST every way. But not according to college financial aid policies. You are not free of your parents’ financial situations until you are age 24 or meet any of some other requirements. College is just a continuation of high school, in that you get what your parents provide. If you can get into a school that is willing to give you financial aid and/or scholarships, they set the rules and conditions. </p>

<p>If you could pay for everything without any help from anyone if you had to, I don’t understand why you couldn’t come up with the $100 which is the merest fraction of college cost that was a sticking point. </p>

<p>The ONLY reason you are getting all of this money for college is because YOUR PARENTS, not YOU, but YOUR ParentS’ fiancial situations are what they are and they are willing to open up this private information to the government and the college. If they refused to do so, you wouldn’t get one dime from Yale or the government. They require that information from your parents and from you and are entitled to any back up documents and corrections of any discrepancies on those document. They are giving you a heck of a lot of money on this basis, so of course the financials have to be in good shape and pass muster.</p>

<p>There are many kids in your situation who cannot go to schools like HPY, or even inexpensive local state schools just because their parents refuse to fill out those forms giving out financial info or they have assets and meanst that they refuse or can’t use to pay for college. That is the way the system is, and yes, everyone in college is just automatically a “kid” regardless of how mature they are unless they meet the requirements for independence which are pretty danged clear.</p>

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<p>From what others have mentioned, the divorce decree is supposed to indicate how/who declares what for taxes regarding alimony and/or child support. So, what did the divorce decree say?</p>

<p>BTW…how much is the annual premium?</p>

<p>my dad couldn’t possibly come up with the $100,000 to finish my education without aid- we simply don’t have the money.</p>

<p>That would have been silly. At most all your dad should have to pay is whatever he loses by changing his tax return (likely not much) or what he’d lose if he paid your mom the amount that she would lose if she changed hers. </p>

<p>You don’t pay $100k when you can just pay a few hundred to fix your TAXES or your exwife’s taxes!!! </p>

<p>If the divorce decree is vague, the person who makes the smaller income should have changed his/her taxes, and the “loss” should have been paid by someone (either or both parents or even by the student with a part-time job.)</p>

<p>It’s silly that it came down to this. The amount owed to the IRS (from changing the taxes) would have been low enough that someone could afford to pay it!</p>

<p>Since it’s likely the mom makes less, adding in the life insurance premiums probably wouldn’t have made much difference at all to what she would owe since lowish income people don’t pay much in income taxes (if they pay any at all).</p>

<p>How much does your mom earn and how much were the life insurance premiums?</p>

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<p>Yes, the IRS cares–they just don’t catch every error. When they do catch one they will hound the average joe until they get their ten cents or ten thousand or more dollars back. They will drown a dude in paperwork and threats (liens, fines, etc) over literally a penny once a mistake has been identified and flagged.</p>

<p>Yes, Yale also cares–they likely didn’t catch the error in previous years. Yale likely doesn’t care if it in a “tiny” mistake of a few bucks or a significant one such as a 15% error on the alimony line. It is possible that Yale has a zero-tollerance policy over a certain threshhold and your parents’ forms hit it. At that point, Yale isn’t about to dither and piddle with two fighting ex-spouses… they toss the tax returns back at the parents (where it belongs) and tells the parents “YOU figure it out.” Yale’s stick or carrot for the parents to get it fixed asap is “Your kid ain’t gettin’ nuttin until you fix this.”</p>

<p>I think it is brilliant and practical solution by Yale. I am a bit shocked how much you seem to be whining about how unfair it is-- you attend an Ivy League school, get tax-payer subsidized loans, and perhaps even freebie money from Yale itself. </p>

<p>It seems that your dad is likely in the wrong with the IRS and has been claiming false on his taxes (unsure but seems likely) and needs to fix this asap. Btw - the IRS likes to slap huge fines that accumulate interest so it is better for dad to fix this now vs later.</p>

<p>I don’t see a problem with Yale’s policies. It is too bad that your parent’s fight over money and the IRS got in the middle of this–just imagine if Yale didn’t have that carrot (or stick)–parents like yours would ignore requests to fix discrepancies both big and small. Case and point: your dad was not about to doso without all those threats hanging over his head that his son would be unable to pay for Yale otherwise.</p>

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<p>Yale wasn’t the problem. Your parents were stubbornly letting a possible Yale education go by the wayside over a few hundred bucks. That was the crazy part.</p>

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<p>Yes…the IRS DOES take the trouble to audit over a “lousy few thousand bucks in deductions”. And they can audit your parents for YEARS after they file a return. If audited,they will not only be responsible for the owed back taxes but there will be a penalty AND interest to pay as well…which could amount to THOUSANDS of dollars out of their pocket.</p>

<p>You signed your FAFSA with YOUR PIN number. For that at least, you were verifying that ALL information on the FAFSA was accurate. Clearly it wasn’t…and you know that now. The best thing you can do for yourself is to straighten this out ASAP. With any kind of luck, Yale will not ask for reimbursement for any need based aid you might have wrongly received the last two years.</p>

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<p>*a lousy few thousand bucks in deductions, amounting to maybe a $500 difference in taxes paid? *</p>

<p>The dumber thing is that your parents were almost willing to give up an ivy education over about a $500 difference in taxes. That was the crazy part. </p>

<p>Here you were arguing that your dad can’t pay $100k for your last two years. No one was really asking him to do that. They were asking him to refile his taxes and pay a lousy $500 in taxes. OMG. This thread is nuts. You could have paid the $500 from a part time job!!!</p>

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<p>YaleStudent:</p>

<p>I trust that you take these posts in a positive light and learn from them. If someone offers to give you something with strings attached, you adhere to the directions (strings) or you risk losing out. In this case, Yale is offering you hundreds of thousands in education, tax free, and yet you complain about THEIR rules about giving YOU free money? Sure, they could be more accommodating as calmom suggests, but they don’t have to be – it is their money and they set the rules. It is not Yale’s fault that your parents have inconsistent tax returns, perhaps by innocent mistake. No matter. Yale just says fix this simple issue and get back to us if you want continue receiving our free money.</p>

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<p>I think one point some posters may be missing is that colleges typically won’t give one parent any info whatsoever about the other parent’s return. The CSS Profile noncustodial parent info is even set up so as to enable both parents to log in with different passwords, and not be able to see each other’s financials. The colleges view the divorced spouse’s info as being confidential – from the other spouse – and won’t release or even discuss info, even with a written waiver in hand. At least that was my experience with the colleges that my kids attended.</p>

<p>So if there had been a discrepency on a form - let’s say hypothetically that I had received $6,000 of child support payments from my ex one year but he wrote on his NCP form that he paid me $10,000 — there would have been no way for me to find out. In my case, my ex was chronically behind with child support payments – he actually quit paying when my d. was 17 and never did catch up on the arrears – so there was a big difference in what he was supposed to pay and what he actually did pay… and of course he conveniently “forgot” and was always messing up the accounting. </p>

<p>I don’t know how Yale handles its financial aid but my d’s college told me that they would take the figures from each parent separately, and run a separate FAFSA calculation on each (treating the NCP as the custodial parent for the purpose of getting the FAFSA number) – and then add the numbers together.</p>

<p>So basically – let’s assume these facts:</p>

<p>H earns $60 K, pays $15K alimony to wife. Thus, for financial aid purposes, H’s income is reduced to $45K.
W earns $30K, receives $15K alimony. Thus, for financial aid purposes, W’s income is increased to $45K.</p>

<p>Financial aid is calculated based on the joint EFC’s of two parents each earning $45K.</p>

<p>Now – it looks like the OP’s situation is a reporting problem – let’s say:</p>

<p>H earns $60 K, pays $15K alimony (including life insurance premiums) to wife. Thus, for financial aid purposes, H’s income is reduced to $45K.</p>

<p>W. earns $30K, reports only $12K of alimony (leaving off the life insurance premiums). Thus, for financial aid purposes, her information would yield an EFC based on $42K of income. </p>

<p>Obviously, that’s wrong – the logical thing to do is either calculate the EFC based on:</p>

<p>H= $45K + W=$45K ---- OR calculate it based on H=$48K + W=$42K – I’d think that the college would run it both ways, adopt whichever calculation resulted in the lower financial aid award to the student – and then write separate letters to each parent informing them that there is a discrepancy in the numbers on the return and asking for more information. </p>

<p>Or --worst case scenario – the college could “punish” each parent by assuming the worst – that is, treating the H’s income as $48K (based on the idea that he over-reported alimony) – and treating the W’s income a $45K (based on the idea that she under-reported alimony) – which essentially allows the college to double count the $3000K difference. </p>

<p>The problem is that the student has no way of knowing which figure is correct, and there may actually be legit reasons for the discrepancy – for example, if the husband made a late payment of alimony by mailing a check off on December 29th – the wife receives and deposits the check on January 2nd-- counting it as income for the following year. </p>

<p>That wasn’t a problem for me with the colleges because I anticipated it, and I’d send my ex an email around the time I’d fill in the forms that noted what “my records” showed he had paid in child support, with the expectation (hope) that he’d use that figure on the college forms… but if he hadn’t, I very likely would have had a situation of the college deciding the numbers didn’t agree but refusing to tell me what the discrepancy was.</p>

<p>It’s not a FAFSA issue, because the FAFSA doesn’t require submission of any documents, or verification, from the noncustodial parent. </p>

<p>IRS may or may not audit the family – but that’s a separate issue than how financial aid is handled. There are plenty of 2-parent families submitting tax returns that have unreported income due to simple accounting errors. One thing that frustrated me over the years is that for financial aid purposes I needed to get my tax returns done early, so I’d send the paperwork to my accountant in early February as soon as I had all my 1099’s – and every single year I’d get someone sending me an amended 1099 in March with changed figures. </p>

<p>In the OP’s case, it looks like the dad was willing to amend his tax return, even though he feels he had properly deducted life insurance payments as alimony… but again, for purposes of financial aid, the amount is a wash because it is a figure subtracted from one income and added to another.</p>

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<p>*In the OP’s case, it looks like the dad was willing to amend his tax return, even though he feels he had properly deducted life insurance payments as alimony… but again, for purposes of financial aid, the amount is a wash because it is a figure subtracted from one income and added to another. *</p>

<p>It’s ridiculous that this became a “big issue”. Once the parents learned of the issue, a simple computation would have revealed that by altering the tax forms, only a small amount would be owed. That amount could have been split. If not, even if one parent had to “man up” and pay, it couldn’t have been much. If stubbornness prevailed, then the student could have paid it with a part-time job. And, since this will affect 2 years, one parent could do it one way one year, and then do it the other way the next year. Even Steven.</p>

<p>The discussion about paying $100k to finish school was insane. No one would pay $100k or even 1k if $500 would fix the problem.</p>

<p>Another silly thing is the dad consulted “attorneys and accountants.” The amount paid to THEM was probably more than what he ended up paying the IRS. Talk about being penny-wise and pound foolish. And, it almost messed up their child’s Ivy league education. </p>

<p>After the IRS audit, maybe an IQ audit is in order.</p>

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<p>LOL…I agree. Ridic the way some divorced folk love to make a mountain out of a molehill!</p>

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<p>Actually, if the father has an accountant prepare his tax returns – then he probably needs to hire (and pay) the accountant to amend them. And he would need to get appropriate advice, either from his lawyer or CPA, because if he had been doing it wrong, then legally (vis a vis IRS) he would need to go back and amend prior years’ tax returns, and probably pay back taxes, interests and penalties as well. So he’s doing the only thing he could do when questioned about something in the return – determine (with the CPA & his divorce attorney) whether or not it was proper to characterize the life insurance payments as alimony in prior years as well as the current one; and amend the current year’s return – with the help of the CPA who returned the original return – to forego the deduction that he apparently had properly taken.</p>