Nearly 400 colleges across the country are about to be asked to disclose intimate financial details of their operations to the Internal Revenue Service.
The federal tax agency announced last week that it had completed work on a 42-page questionnaire, including nine pages of instructions, for the first phase of its Colleges and Universities Compliance Project, which is part of a continuing effort by the IRS to learn more about the finances of tax-exempt organizations.
The questionnaire requires the colleges to report a wide variety of financial data, including what they spend on perks like housekeeping services for executives, and their income and losses on business activities like catering services and travel tours.
Data-Gathering Chore
The colleges involved in the project include a sample of small, midsized, and large institutions, both public and private. They will receive the questionnaire in the coming days.
“I’m not looking forward to it,” said Michael O’Neill, manager of payroll and tax services for the University of California system. Although most institutions collect some of the information that the IRS is seeking, many different and unrelated departments will have to coordinate their efforts to assemble the data, he said.
The questionnaire is meant to take an in-depth look at potential discrepancies between the way institutions operate and how they report their activities to the IRS. While the IRS will not publicly report the data from individual institutions, the information could trigger audits and even penalties for colleges, as well as lesser actions alerting the institutions to their errors. As it has done with other compliance questionnaires, the IRS plans to report its findings.
In recent years, the IRS has taken several similar actions to make sure that tax-exempt organizations are following the rules. At the same time, U.S. Sen. Charles E. Grassley, a Republican of Iowa, has used his position as the top Republican on the Senate Finance Committee to question the role and practices of nonprofit organizations.
Last month, Senator Grassley held a roundtable discussion on college costs, and he has suggested that Congress consider requiring universities to spend a minimum amount of their endowments, as charitable trusts must do.
“Transparency brings accountability,” Senator Grassley said in a news release last week. “As tuition increases go through the roof and families are struggling, colleges need to show they’re going the extra mile to control costs and provide financial support to students.”
Business Income and Executive Pay
The college survey, which is more detailed than a May 2006 questionnaire the agency sent to nonprofit hospitals, focuses on the outside businesses that colleges operate or partner with, said Ronald J. Schultz, a senior adviser at the IRS.
Colleges’ business activities include such things as running a hotel or a commercial research venture with a for-profit company. Although the colleges are tax-exempt, some of their business activities, like selling recreation-center memberships to community members, are taxable, unless the business loses money.
In fact, nearly half of the colleges’ unrelated businesses earn zero profit or take a loss, said Mr. Schultz, and the IRS wants to find out why so many of those endeavors are losing money every year.
Another major part of the questionnaire asks about how colleges compensate their six highest-paid executives. The form requires the institutions to disclose if they pay for health-club or social-club dues, private use of an institution’s aircraft or boat, personal travel for family members, or loans, among other things.
“There’s a lot of ‘gotcha’ questions,” said Sean P. Scally , university counsel and tax lawyer for Vanderbilt University. If an institution lists a form of compensation that it hadn’t previously disclosed, it could face more scrutiny. “You’re playing audit roulette,” he said.
Mr. Schultz said the agency focused on executive compensation because of the high percentage of reporting errors it found in that area when the IRS surveyed other nonprofit entities about their compensation practices.
The other sections of the questionnaire probe how colleges invest and spend their endowment funds and compensate their five highest-paid employees other than executives, who could include athletics coaches or researchers.
http://chronicle.com Section: Money & Management Volume 55, Issue 7, Page A20
