Taxation & Estate Planning

The IRS Begins Scrutiny of Colleges

By Darrin Mish

After announcing in 2007 that it would look into the various tax aspects of colleges, the IRS issued a 33-page questionnaire last fall to 400 public and private colleges to gather tax-related information like how much they pay their Chief Executives, endowment spending patterns, any conflicts of interests and how much of their activities are taxable. The objective of this exercise is to identify possible abuses of the system, launch audits where necessary and even possibly devise new and relevant legislation.

Related to this, two college groups have decided to conduct a parallel exercise based on the same questionnaire. The Association of Governing Boards of Universities and Colleges and the National Association of College and University Business Officers went about collecting as many of the 400 questionnaire responses as possible. In total, they managed to gather 146 out of the 400 questionnaires. The purpose of this endeavor is to determine that the universities and colleges were practicing acceptable standards of good governance, transparency and accountability in their operations especially in relation to taxes. In addition, this exercise is to complement that of the IRS'.

It remains to be seen whether the analysis of the findings of the questionnaire by the two college groups would be similar to the IRS' results. This might not be the case because about 60% of the 146 respondents were public colleges, a disproportionate ratio in view of the fact that the national ratio of public to private colleges is about 7:3. Public colleges are more willing to divulge their information than private ones. The 400 questionnaires collected by the IRS undoubtedly comprised of many more from private colleges. Another reason the analysis of the 146 questionnaires may not be accurate of the overall national situation of colleges is that the voluntary release of information of these colleges most likely means that they are confident their practices are above board.

Unsurprisingly, the results of the 146 questionnaires given to the AGB and the NACUBO showed a rosy picture of good practices especially in the area of governance. Among the results were:

1. A good 98% of public and 97% of private colleges have clearly defined policies against conflicts of interests for their trustees and top managers

2. 91% of the colleges make their audited accounts available to the public

3. 99% of the colleges have a policy for investments of their endowment funds

4. 38% of public colleges paid their presidents between $200,000 and $300,000 a year, 27% of private colleges paid their presidents between $300,000 and $400,000 per annum. 21% of public institutions and 20% of private institutions paid their presidents north of $400,000 a year.

5. 97% of colleges had a target endowment spending rate of at least 4% while 70% had a rate of 5% or higher. Overall, the colleges stated that 45% of all distributions were spent on scholarships and other financial aids.

On the other hand, there were possible problem areas unearthed by the questionnaires. One of them was a comparatively high salary for sports coaches in colleges, a perennial contentious issue.

The actual IRS analysis of its 400 questionnaires remains to be seen.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

The IRS Begins Scrutiny of Colleges is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on January 03, 2010 (boomark / email).