<p>Actually, from what I read above the father is taking the high road. It seems from the IRS info that the father’s return was correct and the mother’s was not. Most people seem to be coming down on the father here despite the fact he fixed things. It seems to be the mother who is spiting the father at the expense of the son.</p>
<p>^^^</p>
<p>That may be. But, a simple request for the mom to change her tax form and PAYMENT of any costs to change, would have fixed the problem, too. Since the mom’s income isn’t high, the cost would have been low - maybe next to nothing. I doubt the mom uses lawyers and CPAs to do her taxes, so a simple amended form and some bucks would have fixed the problem quickly. </p>
<p>I don’t think we can tell by the IRS info as to who should take what deduction. Someone else said that the divorce decree should state. We don’t know **why **the dad has to pay the life insurance premiums on his exwife. </p>
<p>After all, the life insurance policy doesn’t do the mom any good. If she dies, she doesn’t receive the money. So, she may feel that she shouldn’t pay taxes on the premiums. It’s the dad and child that would likely “benefit” from the life insurance payout because the money would be used to raise the son at a savings to the dad. </p>
<p>We don’t even know who the beneficiary of the life insurance is. If it’s the dad, then why should she pay taxes on the premiums? </p>
<p>Either way, it’s not Yale’s fault.</p>
<p>Yale could handle things in a far more considerate manner-- and I’ve explained how.</p>
<p>It doesn’t matter, the problem is solved for this OP – but for anyone considering college, the attitudes and practices of a financial aid office are important to know. There is a difference, and neither parents nor their kids should have to deal with an office that treats them callously or causes undue stress. So it is certainly appropriate for the OP to post his experience online. </p>
<p>I don’t think my kid’s colleges would have responded the same way. I think they would have sent some sort of notice saying that they needed clarification of some financial information, and specifying what they needed. Questions come up all the time – people make mistakes on their tax returns, they make mistakes on filling out the financial aid forms. Some financial aid offices treat students and their parents with respect and courtesy. I don’t think it unreasonable that a student at Yale would have expected the same from his school.</p>
<p>We also don’t know if Yale didn’t try the kindler, gentler approach first, and when met with resistance by both parents, had to go with the tougher approach. What are they supposed to do if both parties refuse?</p>
<p>We also don’t know that the father’s return was correct and not the mother’s. As Mom2 pointed out, the IRS states that it can only be considered alimony if it meets certain criteria. We don’t know that it does. I find it hard to believe that the mother wants to have the father pay her life insurnace premiums in lieu of some alimony and agreed to it beforehand. </p>
<p>I think the lesson to be learned is that, at least while your kids are in college and receiving aid, your returns should strive to be accurate. Many kids come on here and ask how they can manipulate things. This is a good lesson in what happens when people do that.</p>
<p>It’s fairly common that a divorce decree requires the parents to maintain pre-existing life insurance policies that name the children as the beneficiaries. I know that I had that agreement with my ex – only in our case, we each paid our own premiums. </p>
<p>The parents in this case aren’t trying to manipulate things for financial aid. The father is deducting money that he has to pay out, because he thinks he can; the mother is not reporting the life insurance premiums as income because she doesn’t see the money, and thus in her mind it isn’t “income” and she doesn’t think she should have to pay taxes on it. One of the spouses is legally right, the other is mistaken and may pay for that mistake if and when IRS demands the money. IRS often runs several years behind on these things.</p>
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<p>Actually, this COULD be a FAFSA issue too. Remember, the info on the mom’s tax return might be incorrect and therefore what she put on the FAFSA might be incorrect. We do NOT know the mom’s income. It might be that by omitting the insurance/alimony amount, the kid qualified for the Pell, auto zero, or simplified needs test. If that is the case, the kiddo would have received federally funded aid that he/she was not entited to. Federally funded aid is based on the FAFSA EFC ONLY…and does not include info from the non-custodial dad (as noted by Calmom and others). Putting incorrect information on the FAFSA AND receiving aid because of it is considered fraud. This family needs to get this straightened out. As I noted above, hopefully Yale won’t ask for money back if it was incorrectly awarded.</p>
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<p>I completely agree with this. The financial aid issue is ONE issue. The IRS issue is another issue that could end up being a bigger one. </p>
<p>I agree with others…if all this is is a “clerical error”, with an amount not recorded properly, just get it fixed.</p>
<p>My gut feeling is that we don’t know the WHOLE story. For all we (and the custodial mom know) that dad’s noncustodial Profile might have included a HUGE bonus, or some other compensation that made this student ineligible for financial aid…in addition to the alimony/insurance issue.</p>
<p>Thumper, unless there is willful fraud, I don’t think FAFSA Verification is supposed to take the place of an IRS audit. The purpose is to check to see if the numbers match – not to second guess all the various decisions made in terms of tax preparation. Whether or not the life insurance payments count as “income” to the spouse is an open question – as others have posted it depends on the terms of the divorce decree, and there is a possibility that the decree is ambiguous on that point – or that it is clear, but one spouse or another has a mistaken interpretation. </p>
<p>I mean – we’re not talking about a parent hiding a 6 figure nest egg in an offshore account – we’re talking about a relatively small amount of money where there could be a legitimate question about whether or not it should be included on the tax forms. </p>
<p>There are places where financial aid people exercise their own judgment (“professional judgment”) to make adjustments to the figures for their own purposes, disallowing some tax deductions or, in some cases, creating bigger ones --they go in and amend the FAFSA to reflect their changes – but that doesn’t obligate the parent to change their tax return – and in many cases the changes made for FAFSA purposes would be inappropriate to the return itself. </p>
<p>That’s just one more reason I don’t think requesting changes to the return makes sense – the more appropriate role of financial aid would be to request the actual documentation of the expense from the parent. I mean – I don’t think my self-employed ex husband would have been very receptive if my daughter’s college financial aid department had called him up and told him that they didn’t approve of him writing off so much of his car expenses on his schedule C – and insisted that he change the figures reported to IRS.</p>
<p>Calmom, I agree with you…what I’m saying is the “inconsistencies” in the tax returns (especially the custodial parent’s) COULD result in FAFSA EFC calculations being incorrect and therefore federally funded aid awarded that the OP didn’t REALLY qualify for. That is the only reason the FAFSA would play into this at all.</p>
<p>That’s where “professional judgment” comes in. When my daughter was a freshman, her college used professional judgment to increase my schedule A deductions in a way that qualified my d. for a Pell Grant – but definitely would not have been appropriate for the tax returns. In other words, they saw an expense that they thought should be deducted from my income – they unilaterally made adjustments on the FAFSA that treated the expense as if it fit a different category. They had every right to do that under the rules governing “political judgment”.</p>
<p>And Yale would have every right to make its own determination as to how those life insurance premium payments should be treated for purposes of FAFSA – amending the mom’s FAFSA to increase her income if they felt it appropriate.</p>
<p>Yes…professional judgement DOES enter into this situation. </p>
<p>However, I’m with others…if there is the potential to LOSE signficant aid because of a “clerical error”…the parents should try to resolve this.</p>
<p>The parents did resolve it – at least the father did – but the OP posted because he felt the approach the college took was unreasonable, and I agree with him.</p>
<p>My ex and I are both self employed and I was well aware that it is common practice for financial aid departments to scrutinize schedule C’s and add back in business deductions that they don’t think should reduce the income they consider – such as depreciation, care expenses, home office deductions. </p>
<p>I don’t mind that they do that – but I would have been hopping mad if my d’s college had announced that they would not give my daughter any aid at all because they didn’t agree with some write off one of us took. </p>
<p>I think the college is within its bounds to ask for further documentation from the parents; I think it is overstepping its bounds to ask the parents to amend or change their tax returns. Again – if they thought that the mom under-reported her alimony – all they had to do was to amend the FAFSA to add that amount to her income-- and the could very easily have sent a letter to the dad and asked for specific documentation of the amounts he claimed as a writeoff from his own taxes.</p>
<p>I’ve been dealing with financial aid offices for a decade – they’ve asked me for all sorts of documentation over time, and they do want to see tax returns – but none has ever asked me to change my return to satisfy them.</p>
<p>Agree with Thumper…there’s more to this story than a simple $15K discrepancy in income that leads to an additional $100K in Yale costs for the remaining 2 years!!! Even if a higher income family, and Yale combined both parents income, the max the EFC hit would be is around $7500. How does that prompt Yale to withdraw all financial aid???</p>
<p>Sorry…doesn’t add up to me…</p>
<p>I don’t have time to go through all the posts - but the bottom line is this: The aid office absolutely can deny aid if the taxes were not completed correctly. They are REQUIRED to deny federal aid if they discover a filing error, and they will most likely decline to award institutional aid, as well. We often have to tell parents and students that they must file taxes when they didn’t, amend taxes, etc. if they want to get aid. They don’t “have” to do it … but they won’t get aid otherwise. It’s not a choice - federal regulations require aid officers to watch for tax return errors. It’s not much fun, but it’s part of the job.</p>