- The section 501(r) regulations
- College and university compliance questionnaire report
- Group-rulings questionnaire results
The following provides a summary of certain comments made by the officials at today’s conference.
Section 501(r) regulations
Ruth Madrigal, Attorney-Advisor in the Treasury Department’s Office of Tax Policy, said that Treasury and the IRS hope to finalize the regulations under section 501(r) (imposing new tax exemption requirements on hospitals) this year.
College and university questionnaire
Lois Lerner, Director of the IRS Exempt Organizations Division, said that the IRS’s report on the results of the college and university compliance questionnaire will be released today (it was released this afternoon; read text of the final report [PDF 359 KB]).
Lerner said that the questionnaire was sent to 400 colleges and universities, and 98% responded. The IRS also conducted examinations of some of the colleges and universities that received questionnaires. The IRS report will summarize the results of the questionnaire and the IRS examinations.
Among the results, Lerner reported that:
- The IRS discovered that colleges and universities had underreported over $90 million in unrelated business taxable income from activities such as fitness and recreation programs, advertising, facility rentals, and golf courses.
- Approximately 60% of the adjustments were based on improper allocations of expenses.
- Approximately $19 million of adjustments were based on net operating losses that were not properly calculated or substantiated.
- Other reasons for adjustments included improper characterizations of activities as not trade or businesses, and improper classification of activities as substantially related to exempt purposes.
The IRS analyzed compensation of highly paid officials of private colleges and universities—such as, for example, top management officials, sports coaches, and investment managers. The IRS looked at comparability data to determine whether compensation was reasonable and discovered that approximately 20% of the schools did not use appropriate comparability data or otherwise failed to meet the rebuttable presumption of reasonableness under section 4958.
The IRS also found widespread employment tax reporting problems, resulting in the imposition of additional tax and penalties.
Judith Kindell, Senior Technical Advisor to the Director of the IRS Exempt Organizations Division, said that of the approximately 2,000 organizations holding group exemption rulings that received the group-rulings questionnaires, approximately 400 did not respond.
Kindell said the names of the non-responding organizations have been transferred to the IRS Examination function.
For more information, contact:
Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax)
+1 (202) 533-3084