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Ways and Means Subcommittee to Hold May 8 Hearing on IRS College and University Compliance Project

The House Ways and Means Oversight Subcommittee will hold a hearing to examine the findings of the Internal Revenue Service's College and University Compliance Project. The hearing will take place Wednesday, May 8, at 2 p.m.

In announcing the hearing, Subcommittee Chairman Charles Boustany, Jr. (R-La.) expressed concern about the compliance project's findings, stating that "the Subcommittee has an obligation to explore the root of these alarming findings on the audit of our nation's higher education providers."

The goal of the IRS project, which began with a questionnaire mailed to 400 institutions in 2008, was to learn more about how colleges and universities operate, particularly in the areas of endowment management, compensation and unrelated business activities. In 2010, the IRS released an interim report (pdf) of the project, which identified unrelated business activities and compensation as key areas of focus for the examination portion of the project.

On April 25, the IRS released the project's final report (pdf), which focused on findings from examinations of 34 institutions. According to the report, the examinations resulted in:

• Increases in unrelated business taxable income for 90 percent of the institutions examined, totaling $90 million,
• More than 180 changes to the amounts of unrelated business taxable income reported by examined institutions on the Form 990-T (a majority of the adjustments came from fitness, recreation centers, sports camps, advertising, facility rentals, arenas and golf courses) and
• Disallowance of more than $170 million in losses and Net Operating Losses, mainly due to the reporting of losses not connected to unrelated business activities, errors in computation and substantiation and reclassification of exempt activities as unrelated business activities.

The report shows that 20 percent failed to meet the IRS "rebuttable presumption of reasonableness" test on compensation.

The report also notes that since the colleges and universities examined were not randomly selected, readers should not assume that the compensation and unrelated business income activity practices of the examined institutions represent the entire field.

A live webcast of the May 8 subcommittee hearing can be viewed on the House Ways and Means Committee website. Following the hearing, a brief hearing recap will be posted on the CASE website.

Updated May 3, 2013

U.S. Legislative and Regulatory Affairs

• Charitable deduction
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• Congressional scrutiny of endowments
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• Underwater endowments

For further information about CASE's public policy efforts, contact Brian Flahaven, director of legislative, foundation and recognition programs, at flahaven@case.org or +1-202-478-5617.