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The IRS report on colleges and universities reveals findings on unrelated business income.

IRS Report on Colleges and Universities Focuses on UBIT

  • 5/15/2013

IRS Report on Colleges and Universities Focuses on UBIT

An IRS official shared the results of the IRS Colleges and Universities Compliance Project at a hearing of the House Ways and Means Oversight Subcommittee on May 8. Lois G. Lerner, director of the IRS Exempt Organizations Division, said the IRS received responses from more than 90 percent of the 400 institutions it surveyed in 2008. An examination of the surveys resulted in more than 180 changes to unrelated business income (UBIT) reported in 30 specific areas, including advertising, facility rentals, arenas, and golf courses. The IRS released its final report in April, noting that its results should not be extrapolated to the entire higher education industry.

Lerner told lawmakers that institutions reported more taxable income on Form 990-T, primarily because losses associated with misclassified activities were not allowed to offset future profits. The educational institutions had also reported expenses that were not associated with unrelated business activities, made errors in computation and substantiation, and reclassified exempt activities as unrelated business activities, she said.

Another area the IRS examined in the study was compensation for highly paid executive employees, such as presidents, coaches, investment managers, department heads, and faculty members. Lerner said the educational institutions appeared to set their compensation using IRS guidelines for reasonableness, based on industry standards.

As a result of the study, the IRS plans to conduct a broader examination of unrelated business income, and to increase its efforts to help tax-exempt organizations set appropriate levels of employee compensation, according to Lerner.

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