In late 2008, the Internal Revenue Service (the "Service") sent over 400 colleges and universities a questionnaire as part of its colleges and universities compliance project. The primary objective of the project is to increase transparency in the following areas:
Unrelated Business Income ("UBI") The Service is concerned that colleges and universities are incorrectly reporting taxable UBI, including, but not limited to, income generated through:
- Advertising and corporate sponsorships;
- Technology transfer offices;
- Joint ventures;
- Research; and
- Travel tours, conference center operations, university bookstores, and golf course operations.
The increased focus on UBI can be an issue for any activity the exempt organization undertakes that might be seen as competing with private business.
Executive Compensation The Service is interested in the factors it thinks should be taken into account in setting executive compensation, including:
- Salary or compensation packages paid by similar organizations;
- The individual's education and experience;
- Responsibilities of the position;
- The individual's prior salary or compensation package; and
- The organization's budget.
This type of initiative can raise issues for academics, athletics, research, health services, and a variety of other areas related to educational institutions.
Information from the questionnaires has not been released but it will likely be used to conduct focused audits with particular attention to executive compensation and UBI. In the past, focused audits have resulted in an increase in tax revenue from athletic department merchandising as well as employment taxes.
Responses to the questionnaire may also be used to design a new schedule for the Form 990 that all colleges and universities will be required to file. To prepare for the possibility of new disclosure and compliance requirements all colleges and universities, regardless of whether they received a questionnaire, should consider reviewing their policies and procedures with a particular emphasis on executive compensation, UBI and endowments.