To the Editor:
“For Many College Presidents, Home Is an Uncalculated Benefit” (The Chronicle, May 12) says that, “because the presidents are obligated by their contracts to live in the houses, they don’t pay income tax on them.”
Where did that idea come from? I’m sure the article accurately reflects the understanding of most boards of trustees and of presidents themselves. (I’ve heard a president make exactly that point.) But that understanding doesn’t reflect the law.
The analysis required under the Internal Revenue Code and Treasury Regulations is much more extensive. It’s true that, for the value of lodging provided by an employer to be excluded from the income of an employee, the lodging must be a “condition of employment.” But that’s only one requirement. The lodging must also be provided for the “convenience of the employer.” The Supreme Court has interpreted that phrase as meaning the benefit must be necessary “to the functioning of the employer’s business,” and the regulations give as an example a situation where the employee must be available to deal with emergencies. (Other examples seem to have no possible application to college presidents.)
Whatever the practice in the real world, I’ve never seen a serious argument that the typical presidential lodging is for the convenience of the employer. Most presidents are obviously not around to deal with emergencies; they’re away raising money. Of course they need places to entertain potential donors, but what, pray tell, is the business necessity for entertaining in the president’s home?
It’s time to reexamine the tax treatment of this common fringe benefit—one that is provided to folks who are hardly among society’s downtrodden. Is this anything other than an attempt to convert what should be taxable compensation into a potentially tax-free form? And the issue goes beyond college presidents: Some well-compensated museum directors are also provided free housing on the assumption that the benefit is nontaxable.
I might note that an earlier article in The Chronicle (“Pay and Perks Creep Up for Private-College Presidents,” December 9, 2012) made it clear that not everyone thinks lodging is tax-free. Jesse M. Fried, a law professor at Harvard University, was cited as defending the practice, in some circumstances, of colleges’ paying any income tax due on benefits provided to presidents. In the article’s words: “College presidents may incur some tax liabilities on benefits they are contractually obligated to accept, like houses and cars. If trustees believe it is important for a president to live in a university-owned home, they may remove the tax burden to ensure that the offer is as attractive as possible.” Whatever the merits of this “grossing-up” policy, some institutions must be getting the underlying tax analysis right.
Erik M. Jensen
Professor of Law
Case Western Reserve University
Cleveland