IRS issues interim report on the colleges and universities compliance project.

• Author: VanDeveer, Mark A.

The IRS recently issued an interim report on the Colleges and Universities Compliance Project that was initiated by the Exempt Organizations (EO) function of the Tax Exempt and Government Entities (TE/GE) division. This project is a study of public and private colleges and universities that represents one of the largest segments of the tax-exempt community.

The study includes a compliance check of colleges and universities primarily focused on (1) executive compensation practices, (2) unrelated business taxable income, and (3) investment, management, and use of endowment funds. The compliance check also looks at a number of issues relating to governance in these areas.

The IRS describes a compliance check as follows:

A compliance check is a review conducted by the IRS to determine adherence to certain requirements. A compliance check also is a tool to help educate organizations about their reporting requirements and to increase voluntary compliance. A compliance check is not a review of the organization's books and records. Organizations may refuse to participate; however, the IRS has the option of opening a formal examination whether or not the organization agrees to participate,[emphasis added] [IRS Exempt Organizations, Colleges and Universities Compliance Project Interim Report 1 (May 7, 2010) In October 2008, the EO sent compliance check questionnaires to 400 public and private colleges and universities that offer four-year degrees or higher. The EO received 387 responses, which included 31 from organizations that said they were not to be included in the study (e.g., they were not tax exempt or offered only a two-year degree). Note that 13 organizations did not respond and were referred to EO examination. In addition, those organizations that returned the questionnaire but did not substantially complete it or left specific questions unanswered may still be referred to EO examination.

The interim report shows data reported by 344 colleges and universities--167 public and 177 private organizations of various sizes. The EO is currently conducting examinations of a subset of the organizations that received the questionnaire.

Highlights from Preliminary Summary of Data

* Related tax-exempt organizations were the most commonly reported type of related entity for all size categories, followed by taxable corporations and trusts, disregarded entities, and partnerships.

* Only 26% of large organizations with at least one controlled entity...