The University of Texas at Austin is among the more than 30 universities nationwide recently audited by the Internal Revenue Service.
The IRS is trying to enforce effective tax administration, meaning it wants to make sure that the schools are properly reporting taxable income.
The IRS is reviewing financial records at both public and private colleges to determine whether the tax-exempt groups are correctly listing business income. Business income on campuses can come from everything from bookstores to sporting events. The institutions’ tax-exempt status extends only to educational and research-related activities and not to for-profit entities the campus operates.
The audit follows a 2008 survey it sent to 400 universities, also asking questions about campus endowments and compensation. The survey allegedly showed that many colleges were not reporting their taxable income completely.
In all, the IRS audited more than 30 universities nationwide, including some of the most prestigious. In addition to Texas, the IRS reviewed documents at Harvard University, Cornell University and the University of North Carolina.
The director of exempt organizations for the IRS said the agency likely will finish the audits this year, then make its findings public.
Some universities, however, already know the results. Lamar University, another member of the Texas state-university system, paid nearly $35,000 combined in business income and payroll taxes because of the investigation.
A spokesman for Cornell said the university learned that the IRS accepted the school’s tax return as it was filed. Officials at fellow Ivy League campus Harvard said the IRS audit had not yet been finished.
The IRS has not accused any university of intentionally failing to properly pay taxes. Just as individual taxpayers must constantly stay abreast of tax laws, so must universities and other nonprofit institutions. Tax attorneys can assist in sorting through confusing regulations.
Source: Bloomberg, “Cornell Joins Harvard as IRS Examines Ivy League Schools,” Michael McDonald, May 17, 2012