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In our latest report, we documented key events that show how the IRS transferred incorrect Federal Tax Information (FTI) to the Department of Education that potentially affected 7.2 million federal student aid form requests.
The IRS Transferred Incorrect Federal Tax Information to the Department of Education for Federal Student Aid
Why did we do this audit?
A December 2019 law allowed the IRS to disclose certain FTI to the Department of Education. The law streamlined the Free Application for Federal Student Aid (FAFSA) application process for students, parents, and borrowers by enabling them to request that the IRS disclose their tax information to the Department of Education when applying for federal student aid.
In April 2024, the Department of Education publicly announced that the IRS was transferring incorrect taxpayer data to the FAFSA application system. Transferring incorrect FTI could lead to inaccurate Student Aid Index calculations, interruption of students’ financial aid offers, as well as delayed major educational decisions for applicants who applied for federal student aid.
We assessed the IRS’s processes and procedures for disclosing taxpayer data to the Department of Education.
What did we find?
The IRS developed an application programming interface that communicates with a system at the Department of Education to transfer FTI for student aid requests. We found that the IRS transferred inaccurate FTI due to an incorrect business requirement implemented during development. This resulted from the IRS's cross-functional project team not using a data dictionary as required.
The IRS subsequently reprocessed approximately 7.1 million previously received FAFSA Form requests and provided the updated FTI to the Department of Education.
IRS document standards require that data specifications be created for data structures (data structures consist of all files, records, groups, and items used by a system). These data details must be defined in a data dictionary. We determined that the IRS does not have a data dictionary for these data sources and without one, cannot ensure that programming errors are avoided.
The IRS’s data repositories are complex and contain sensitive taxpayer data that must be secure. This environment poses unique challenges when establishing accurate and secure data sharing agreements. The inaccurate data exchange with the Department of Education represented a fraction of taxpayers and was limited to tax information for education. A recent Executive Order aims to remove barriers and promote inter‑agency data sharing. We believe it is important that lessons learned from existing data sharing agreements inform similar future arrangements to help prevent the transfer of inaccurate taxpayer data.
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