IRS Zeroing in on Auditing Ivy League Schools


The IRS has been probing more than 30 state schools and private nonprofit schools such as Harvard University in its latest efforts to ensure tax compliance. The latest blue chip university to be investigated is Cornell University. Its chief executive, Joanne DeStafano told a congressional committee in Washington that the IRS completed its probe in March. At a hearing on tax-exempt organizations, DeStefano confirmed that the university’s tax filings were examined along with its operations that produce so-called unrelated business income, which is liable for federal income tax.

It is not uncommon for top ivy league universities to engage in operations outside of their academic interests. These include starting or running restaurants, bookstores, sports facilities and even hotels. Although the universities themselves are exempted from tax, these other businesses are not. So when universities open these businesses unrelated to their core academic operations, they are liable to tax.

In a survey conducted among 400 universities in October 2008, the IRS has discovered a lack of tax compliance in these operations run by these universities. The survey included questions on compensation and endowments and eventually led to the audit of more than 30 of the universities, including the University of Texas at Austin and the University of North Carolina.

The IRS director of exempt organizations, Lois Lerner said that the IRS expects to complete their audits within this year. Some universities have already paid back taxes on their businesses as a result of the audits. Among them is Lamar University, which is part of the state university system in Texas. In January, the university paid $9,481 in unrelated business income taxes as well as $23,171 in payroll taxes.

A spokesperson for the university, Simeon Moss confirmed that Cornell University’s tax-exempt status is unaffected and the IRS has taken the university’s 990 return as filed. Form 990 is the tax form nonprofit institutions fill up in their federal tax return.

Cornell University, along with Harvard that is also based in New York are two out of the eight universities in the Ivy League in the US Northeast. Both universities have long histories and were founded in 1865.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Darrin Mish, Tampa Tax Attorney, The Law Offices of Darrin Mish, P.A. | Attorney Advertising

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