Taxation for Universities and Colleges

STEVE HOFFMAN is a tax professional with long experience in taxation for colleges and universities as well as nonprofit organizations. He is a former tax manager for The Ohio State University and George Washington University.He is also a former Director in the Business and Finance Division of West Virginia University. He publishes the Tax Update Newsletter for Colleges and Universities, which is distributed throughout the United States. He spent fifteen years at the Internal Revenue Service and is also a Certified Financial Planner.

• Preface xiiiAcknowledgments xxiAbout the Author xxiii1 Awareness 1Defining Tax Exempt 1The Six Steps of Tax Compliance 2The Five Things You Need to Do First 4Task 1: Look at Management 4Task 2: Assess the Current State of Your Tax Compliance Program 5Task 3: Develop a Team Approach 7Getting a Hold on the Process 7The IRS Is Paying Attention 9Why You Should Care 12Task 4: Assess Your Risk 13Task 5: Review IRS Communications 17Open Them! 17Statistics on Tax Staff 19The Different Kinds of Tax 20Employment Tax: The First Tax to Know about Because It’s the Largest One for Your University 20Unrelated Business Income Tax (UBIT): Not a Distant Cousin Tax but a Close Relative to You Tax 21Sales Tax: It Is Close to Home 21Excise, or Exercise-Your-Checkbook Tax 22Borrowed Money Can Mean Tax, Too 22Overseas (International) Tax 22In Summary: Build Your Village 242 Identification 25Steps in Identifying Your Needs 26Independent Contractors 27Unrelated Business Income Tax (And What Does Macaroni Have to Do With It?) 30UBIT Applies to All and Can Be Necessary 31It’s Okay to Have Unrelated Business Income 32The IRS Cares about UBIT 32The Three Tests for UBIT 34The Trade, or Business, Test 35Regularly Carried on Test 36The Not Substantially Related Test 37Advertising Is Always Subject to UBIT 40Things You Generally Don’t Have to Worry About: Common Exceptions to UBIT 40Convenience Exception 41Go Ahead, Ask Around: The UBIT Questionnaire on Campus 41Allowable Deductions from UBIT 43Allocating Expenses: The IRS Hasn’t Clarified 43Unrelated Debt-Financed Income: Got a Bonded Building? 45Research as UBIT 45Foreign Students: The IRS Calls Them Nonresident Aliens 46Sales Tax 48Identifying Sales Tax Savings in Other States 50Employment Tax and Fringe Benefits 50Excise Tax 52Overseas and International Tax 53In Summary 543 Compliance 55Policies 56Enforcing Policies 58Give Them the Right Tools for the Job 60Centralize the Tax Responsibilities 63Keep Tax at the Forefront of Your Mind 64Fringe Benefits 67No Additional Cost Services 68Qualified Employee Discounts 69Working Condition Fringes 69De Minimis Fringes 70Qualified Transportation Fringes 71Examples of Common Fringe Benefits 72University-Owned Automobiles 72University-Owned Airplanes 73Professional Dues, Publications, and Meetings 73Travel and Entertainment Expense Reimbursements 73Supper Money and Taxi Fares 74Gifts and Awards 74Athletic Facilities 74Spousal Travel 75Free or Discounted Theater or Athletic Tickets 75Club Memberships 76Domestic Partners 77Leave Donation or Sharing Programs 77Cell Phones 77In Summary 784 Reporting 81Questions About Reporting Tax Obligations, Answered 81When are the Tax Deposits and Tax Forms Due? 82Who Is Preparing the Tax Forms? 82How Do You Know They Are Done? 83How Do You Learn about Lapses of Reporting? 83When Reporting Begins 84Payments to Human Research Subjects 85Getting People Used to Thinking About Taxes 86The Tax Calendar 87In Summary 895 Monitoring 91Policies And Procedures 92Consistency and Ease of Use 93Provide Multiple Paths to Information 94Simulated Audit 98Your Tax Manager Position 99In Summary 1006 Tax Nirvana 103The Land of “ahh . . . ” 103You Can Finally Rest 104Passing the Baton to You 105The Tax Pyramid Compliance Program Steps, Simplified 106Awareness Simplified 107Identification Simplified 107Compliance Simplified 108Monitoring Simplified 108Reporting Simplified 108Tax Nirvana Simplified 108In Summary 1097 Your Audit Defense 111Building An Audit Defense 111Setting the Tone 112Types of Audits 114Before the Audit 115During the Audit 116After an Audit 122You Don’t Have to Go It Alone 125Hire a Tax Manager 125Centralize All Tax Reporting Functions to the Extent You Can 125Monitor and Control Tax Compliance at Your University 126Getting Your Bearings 126Concluding Remarks 129Appendix 131What a VP Wants from a Tax Manager 131A Knowledgeable Tax Staff That Understands Laws and Regulations as They Apply to HigherEducation 132A Tax Staff That Understands They Work for the University, Not the IRS 132A Tax Staff with a Calm Approach 133A Tax Staff That Solves Problems Creatively 133A Tax Staff with Personal Detachment 134A Tax Staff Willing to Work with Others to Achieve Reasonable Results in a Tax Issue 134A Tax Staff Willing to Accept Risk 135A Tax Staff That Knows the CEO/CFO Is in Charge 135A Tax Translator Guide to UBIT Determination 137UBIT Compliance Checklist 160Unrelated Business Income 160Description of Activity 162General 162Advertising and Sponsorship 163Services 164Products 165Rental Arrangements 165Rental of Property 165Foreign Activities 166Foreign Accounts 166Foreign Offices 167Foreign Grants 167Foreign Employees 167Investments in Foreign Entities 168Other State Activities 168Commercially Sponsored Research 168Partnerships and Joint Ventures 169Activities/Expenditures 169Political 169Definition 169Lobbying 169Definition 170University of Central Florida UBIT Questionnaire 172University of Notre Dame UBIT Questionnaire 175Index 177