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TAX ISSUES IN HIGHER EDUCATION #Fin 2238 Isabel Smidy, CPA, MST Assistant Controller for Tax Compliance Middlebury College, Middlebury, VT 05753 Tel.

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Presentation on theme: "TAX ISSUES IN HIGHER EDUCATION #Fin 2238 Isabel Smidy, CPA, MST Assistant Controller for Tax Compliance Middlebury College, Middlebury, VT 05753 Tel."— Presentation transcript:

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2 TAX ISSUES IN HIGHER EDUCATION #Fin 2238 Isabel Smidy, CPA, MST Assistant Controller for Tax Compliance Middlebury College, Middlebury, VT Tel Fax College Business Management Institute University of Kentucky, Lexington, KY August 1, 2008

3 2 WELCOME

4 KEY ELEMENTS Preserving tax exempt status loss of contributions, federal aid Minimizing tax liability: Institution Employees Donors/donor relationships

5 4 Topics for Discussion Payroll and Employment Tax Issues Payroll and Employment Tax Issues Nonresident Aliens Nonresident Aliens Employee vs Independent Consultant Employee vs Independent Consultant Fringe Benefits Fringe Benefits Accountable Plans Accountable Plans Unrelated Business Income Tax (UBIT) Unrelated Business Income Tax (UBIT) Intermediate Sanctions Intermediate Sanctions

6 5 Topics for Discussion Tax Exempt Bonds Tax Exempt Bonds Charitable Contributions Charitable Contributions Lobbying and Political Activity Lobbying and Political Activity Other Resources Other Resources IRS Priorities for Nonprofit Review & Other Legislative Agenda IRS Priorities for Nonprofit Review & Other Legislative Agenda Risk Management Issues Risk Management Issues

7 6 Payroll and Employment Tax Issues Employment Tax Responsibilities Reference: IRS Pub 15 Circular E Employment Tax Responsibilities Reference: IRS Pub 15 Circular E an employer-employee relationship (not independent contractor) an employer-employee relationship (not independent contractor) the payment of wages (settlements, N.Dakota case) the payment of wages (settlements, N.Dakota case) the payment must be made with respect to employment the payment must be made with respect to employment

8 7 Payroll and Employment Tax Issues Payment and Reporting Obligations Payment and Reporting Obligations Electronically remit payments withheld Electronically remit payments withheld If you accumulate $100,000 or more of taxes on any day during a deposit period, you must deposit the tax by the next banking day, whether you are a monthly or semiweekly schedule depositor If you accumulate $100,000 or more of taxes on any day during a deposit period, you must deposit the tax by the next banking day, whether you are a monthly or semiweekly schedule depositor Report covered wages paid on Form 941 Report covered wages paid on Form 941 Employers Quarterly Federal Tax Return – does not include wages of non resident aliens which are treaty exempt.

9 8 Payroll and Employment Tax Issues IRS Penalties IRS Penalties Filing late or incorrect information returns Filing late or incorrect information returns If no $ is due have an additional 10 days If no $ is due have an additional 10 days Filing late or incorrect payee statements Filing late or incorrect payee statements $50 per statement $50 per statement Depositing tax withholding after the deadline Depositing tax withholding after the deadline 1-5 days = 2% Greater 15 days 15% 1-5 days = 2% Greater 15 days 15% Not filing or depositing at all Not filing or depositing at all Max penalty is 25% of taxes due Max penalty is 25% of taxes due ER STILL RESPONSIBLE IF USING PAYROLL SERVICE. ESTABLISH REASONABLE CAUSE INTEREST & PENALTIES. ER STILL RESPONSIBLE IF USING PAYROLL SERVICE. ESTABLISH REASONABLE CAUSE INTEREST & PENALTIES.

10 9 Payroll and Employment Tax Issues Income Tax Withholding Income Tax Withholding On wages, salaries, and bonuses, unless a specific exemption exists – not on treaty wages of non resident aliens, or foreign earned income exclusion On wages, salaries, and bonuses, unless a specific exemption exists – not on treaty wages of non resident aliens, or foreign earned income exclusion Fringe benefits not excluded by the IRC, such as season tickets and personal use of automobiles, spousal travel, and club dues Fringe benefits not excluded by the IRC, such as season tickets and personal use of automobiles, spousal travel, and club dues Employers Tax Guide to Fringe Benefits Pub 15B Employers Tax Guide to Fringe Benefits Pub 15B

11 10 Payroll and Employment Tax Issues Graduate Student Stipends Graduate Student Stipends As payment for services rendered As payment for services rendered As a grant, scholarship or fellowship As a grant, scholarship or fellowship Need to allocate between the service component and the scholarship component. How much does your institution pay for similar services to regular staff? Need to allocate between the service component and the scholarship component. How much does your institution pay for similar services to regular staff?

12 11 Payroll and Employment Tax Issues Non-Reportable Non-Reportable Payment based on tort or tort-type rights (injury or wrongful act) Payment based on tort or tort-type rights (injury or wrongful act) Personal physical injuries or physical sickness - IRC 104 (a) (2) Personal physical injuries or physical sickness - IRC 104 (a) (2) Reportable Reportable Emotional distress Attorneys fees Prior to Comm. vs Bonds, 543 U.S. 426 the courts were divided, the Supreme Court settled the issue, attorneys fee payment represents taxable income to the plaintiff thereby imposing the withholding requirement. Settlement Payments – Prior to Aug 1996 most settlements were tax free Twist: Newhouse vs McCormick, 157 F 3rd 582 (8th Cir 1998) Ind. brought an age discrimination case against a Prospective Employer, rejected for the position. The court held that since the ind. was a job applicant and not an employee, was not subject to taxes.

13 12 Payroll and Employment Tax Issues FICA Exclusions FICA Exclusions Certain nonresident aliens Certain nonresident aliens individuals in the US on F-1, J-1, M-1, or Q-1 visas qualify under section 3121(b)(19) of the IRC individuals in the US on F-1, J-1, M-1, or Q-1 visas qualify under section 3121(b)(19) of the IRC - Services performed for certain churches or church-controlled organizations Student FICA exception Student FICA exception While regularly attending While regularly attending classes classes

14 13 Payroll and Employment Tax Issues Student FICA Exception Student FICA Exception Primary Function of Institution Primary Function of Institution School, College, or University § (b)(10)-2 (2005) School, College, or University § (b)(10)-2 (2005) formal instruction, regular faculty & curriculum, regularly enrolled student body formal instruction, regular faculty & curriculum, regularly enrolled student body Career Employees/Professional Employees - not eligible Career Employees/Professional Employees - not eligible Work >=40 hours per week regularlyWork >=40 hours per week regularly Participate in RetirementParticipate in Retirement Required to be LicensedRequired to be Licensed Work requires advanced knowledgeWork requires advanced knowledge Work requires discretion and judgmentWork requires discretion and judgment Work is intellectual and variedWork is intellectual and varied

15 14 Payroll and Employment Tax Issues Student FICA Exception Student FICA Exception Medical Residents Medical Residents

16 15 Payroll and Employment Tax Issues Worker Classification Worker Classification Originally IRS relied on the twenty common law factors (Rev. Rul ) Originally IRS relied on the twenty common law factors (Rev. Rul ) Behavioral Control Behavioral Control InstructionsInstructions TrainingTraining Financial Control Financial Control Significant InvestmentSignificant Investment ExpensesExpenses Opportunity for Profit or LossOpportunity for Profit or Loss

17 16 Payroll and Employment Tax Issues (cont.) Worker Classification (cont.) Worker Classification (cont.) Relationship of the Parties Relationship of the Parties Employee BenefitsEmployee Benefits Written ContractsWritten Contracts Services are a key aspect (Faculty, Coaches)Services are a key aspect (Faculty, Coaches) Permanency of the positionPermanency of the position Penalties for misclassification, including payment of taxes that should have been withheld Relief under Section 530 of the Revenue Act of Reasonableness, Case law. Audit alert: The IRS is once again investing resources in this area. The tax gap has been a driving force. Examiners will review for persons receiving both a W2 and The good news is that the IRM will be updated with the details. Audit alert: The IRS is once again investing resources in this area. The tax gap has been a driving force. Examiners will review for persons receiving both a W2 and The good news is that the IRM will be updated with the details.

18 17 Nonresident Aliens Laws date back to the early 1960s. Tax Reform Act of 1986 made the most significant changes in terms of redefining the sourcing rules of scholarships. Who are Nonresident Aliens Who are Nonresident Aliens Students, faculty, performers, lecturers Students, faculty, performers, lecturers Tax residency status IRC 7701(b) Tax residency status IRC 7701(b) Green card test (Permanent Res. Treat Like a US person) Green card test (Permanent Res. Treat Like a US person) Substantial presence test (determines if you are an NRA or a RA) current yr at least 31 days, previous 1/3 days, second preceding 1/6 if sum is equal to or greater than 183=RA Substantial presence test (determines if you are an NRA or a RA) current yr at least 31 days, previous 1/3 days, second preceding 1/6 if sum is equal to or greater than 183=RA

19 18 Nonresident Aliens When is Tax Withholding Not Required When is Tax Withholding Not Required Foreign-sourced income IRC Foreign-sourced income IRC NRA students who are abroad on scholarships, Web and course design outside of the US, work performed outside the US, scholarships from outside US. NRA students who are abroad on scholarships, Web and course design outside of the US, work performed outside the US, scholarships from outside US. Internal revenue code exemption Internal revenue code exemption Mostly qualified scholarships under IRC 117. Mostly qualified scholarships under IRC 117. Exempt under an income tax treaty Exempt under an income tax treaty Currently there are about 60 tax treaties. Currently there are about 60 tax treaties.

20 19 Nonresident Aliens Systems that Process Payments Taxable to NRAs Systems that Process Payments Taxable to NRAs Student Accounts - Scholarships Student Accounts - Scholarships Accounts Payable – Honorariums, Prizes, Performers, Lecturers (Never on a Form 1099) Accounts Payable – Honorariums, Prizes, Performers, Lecturers (Never on a Form 1099) Payroll – Students and faculty Payroll – Students and faculty Gathering data: FNIF Gathering data: FNIF Audit activity: focused exams – open door program. VCP. Audit activity: focused exams – open door program. VCP.

21 20 Fringe Benefits § 132 Enacted 1984 (DEFRA 84) Deficit Reduction Act included the term fringe benefit Any property or service (or cash under certain circumstances) that an employee receives from an employer, in lieu of or in addition to regular taxable wages, is a fringe benefit that may be subject to taxation. Any property or service (or cash under certain circumstances) that an employee receives from an employer, in lieu of or in addition to regular taxable wages, is a fringe benefit that may be subject to taxation. A statutory exclusion must exist in order for the benefit to not be taxable.. A statutory exclusion must exist in order for the benefit to not be taxable..

22 21 Fringe Benefits Reporting requirements Reporting requirements Penalties Penalties Recordkeeping requirements – no records-taxable income Recordkeeping requirements – no records-taxable income IRS audit activity IRS audit activity Employee benefits handbook Employee benefits handbook Union Agreements Union Agreements Employment contracts (especially those of executives) Employment contracts (especially those of executives) Corporate minutes Corporate minutes Chart of accounts Chart of accounts Written policies and procedures regarding fringe benefits Written policies and procedures regarding fringe benefits A/P Journal, G/L Accts that include ee benefits A/P Journal, G/L Accts that include ee benefits Payroll Journal Payroll Journal Examiners will look at expense categories that are less obvious but may include fringe benefits such as misc expenses, auto expense, ins & travel reimbursements. IRM 4,23, 5,11.5 ( )

23 22 Fringe Benefits Examples of benefits that may be entirely or partially excluded from the taxable income of an employee: Examples of benefits that may be entirely or partially excluded from the taxable income of an employee: qualified undergraduate tuition reduction for dependents §117 qualified undergraduate tuition reduction for dependents §117 certain insurance, up to a certain level certain insurance, up to a certain level health and disability insurance; IRC 105health and disability insurance; IRC 105 group-term or other life insurance ($50,000 limit) IRC 79group-term or other life insurance ($50,000 limit) IRC 79 personal liability insurancepersonal liability insurance

24 23 Fringe Benefits Dependent care assistance (IRC § 129) Dependent care assistance (IRC § 129) Use of athletic facilities, subject to certain conditions Use of athletic facilities, subject to certain conditions Automobile allowances or use of an employers automobile for business purposes Automobile allowances or use of an employers automobile for business purposes Travel benefits, including recruiting, fundraising, attending conferences Travel benefits, including recruiting, fundraising, attending conferences Awards for length of service and safety achievement Awards for length of service and safety achievement The length of service and safety achievement awards must be awarded as part of a meaningful presentation, Regs (3) Less than $1,600 (cannot be cash) if written plan – no management or executives Less than $1,600 (cannot be cash) if written plan – no management or executives

25 24 Fringe Benefits Employer-paid transportation($115) or parking($220) Employer-paid transportation($115) or parking($220) Free or discounted admission to university sponsored events Free or discounted admission to university sponsored events Cafeteria plan benefits §125 Flexible spending accts Cafeteria plan benefits §125 Flexible spending accts medical/dental/vision expensesmedical/dental/vision expenses group term life insurance §79 greater $50k taxablegroup term life insurance §79 greater $50k taxable dependent care assistancedependent care assistance adoption assistanceadoption assistance Moving and relocation expenses §217 Moving and relocation expenses §217 IRS Pub 521 Form 3903 (meals, real estate, house hunting & temp living expenses are taxable)

26 25 Fringe Benefits Qualified Employee Discounts §132 ( c ) Qualified Employee Discounts §132 ( c ) No Additional Cost Services §132(b) No Additional Cost Services §132(b) Working Condition Fringe Benefits §132(d) Working Condition Fringe Benefits §132(d) May be provided on a discriminatory basis. Employee can deduct on return. Related to the employees work. May be provided on a discriminatory basis. Employee can deduct on return. Related to the employees work. Di minimis Fringe Benefits §132(e) Di minimis Fringe Benefits §132(e) Bookkeeping is a burden. The free turkey. Certificate is taxable, turkey not taxable. Bookkeeping is a burden. The free turkey. Certificate is taxable, turkey not taxable. Qualified Moving Expense Reimbursements §132(g) Qualified Moving Expense Reimbursements §132(g) Qualified transportation fringe benefit §132(f) Qualified transportation fringe benefit §132(f) Gifts (less than $15), Free Stuff (expensive door prizes), Gifts (less than $15), Free Stuff (expensive door prizes),

27 26 Fringe Benefits Employer-Provided Cars (listed property) Employer-Provided Cars (listed property) Employer-Provided Cell Phones (listed property). Current IRS position, absent detailed substantiation, it will be 100% taxable to the ee. If legs passes they will be treated like all other fringe benefits including the desk phone. For latest developments check H.R Employer-Provided Cell Phones (listed property). Current IRS position, absent detailed substantiation, it will be 100% taxable to the ee. If legs passes they will be treated like all other fringe benefits including the desk phone. For latest developments check H.R Lodging & Meals Provided for the Convenience of the Employer Lodging & Meals Provided for the Convenience of the Employer § 119 Educational Assistance §127 Max $5,250 Educational Assistance §127 Max $5,250 Employee Business Expense Reimbursements (Accountable Plans) Employee Business Expense Reimbursements (Accountable Plans) IRC 274(d) IRC 274(d) -must be a business expense -must be a business expense -verify and substantiate -verify and substantiate -return any unused portion -return any unused portion

28 27 Accountable Plans Business Connection IRC 162 Business Connection IRC 162 The amount must be paid for business expenses paid or incurred by the ee in connection with the performance of services on behalf of the er. Substantiation Substantiation Amount Amount Time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift, Time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift,

29 28 Accountable Plans Substantiation Substantiation Business purpose of the expense or other item Business purpose of the expense or other item the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift Expense advance must be reasonably calculated to cover expenses Expense advance must be reasonably calculated to cover expenses Employee must substantiate within 60 days Employee must substantiate within 60 days Must return unspent allowance within 120 days Must return unspent allowance within 120 days

30 29 Unrelated Business Income Tax A little history… A little history… Prior to 1950 tax exempt organizations could engage in unrelated business activities. Then along came NYU School of Law with its subsidiary the Mueller Macaroni Company. Mueller Co. v. Commissioner, 190 F.2d 120 (1951). Income is from a trade or business production of income Income is from a trade or business production of income The trade or business is regularly carried on by the organization (frequency, continuity, and how it is carried on) The trade or business is regularly carried on by the organization (frequency, continuity, and how it is carried on) The trade or business is not substantially related to the institutions tax-exempt functions mission The trade or business is not substantially related to the institutions tax-exempt functions mission

31 30 Unrelated Business Income Tax Exceptions Exceptions Convenience businesses (laundry operated for students) Convenience businesses (laundry operated for students) Research (for the public interest-inc tech transfer to private sector for testing) Research (for the public interest-inc tech transfer to private sector for testing) Corporate Sponsorships (no substantial return benefit other than the use or acknowledgment of the name or logo – cannot say that coke is better than pepsi) Corporate Sponsorships (no substantial return benefit other than the use or acknowledgment of the name or logo – cannot say that coke is better than pepsi) Certain types of income (received in a passive manner) Certain types of income (received in a passive manner)

32 31 Unrelated Business Income Tax (cont.) Income Exceptions Income Exceptions Investment income IRC § 512(b)(1) (interest, dividends and annuity income) Investment income IRC § 512(b)(1) (interest, dividends and annuity income) Rent IRC § 512 (b) (2) (no not provide cleaning services) Rent IRC § 512 (b) (2) (no not provide cleaning services) Royalty income (trademark, copyright) Royalty income (trademark, copyright) Capital gains IRC § 512 (b)(5) (excludes all gains or losses from the sale, exchange, or other disposition of property) Capital gains IRC § 512 (b)(5) (excludes all gains or losses from the sale, exchange, or other disposition of property)

33 32 Unrelated Business Income Tax Unrelated Debt Finance Income Unrelated Debt Finance Income property held to produce income to which there is acquisition indebtedness

34 33 Unrelated Business Income Tax Corporate Sponsorships Corporate Sponsorships Qualified Sponsorship Payments (money, transfer of property, performance of service) Qualified Sponsorship Payments (money, transfer of property, performance of service) Substantial Return Benefit (exclusive provider arrangement, goods, facilities, services, rights to intangible assets) Substantial Return Benefit (exclusive provider arrangement, goods, facilities, services, rights to intangible assets) Use or Acknowledgement (value neutral descriptions) Use or Acknowledgement (value neutral descriptions)

35 34 Unrelated Business Income Tax Corporate Sponsorships Corporate Sponsorships Advertising not per se a return benefitAdvertising not per se a return benefit Messages containing qualitative or comparative languageMessages containing qualitative or comparative language Price information or other indications of savings or valuePrice information or other indications of savings or value An endorsement or an inducement to purchase, sell, or use the products or servicesAn endorsement or an inducement to purchase, sell, or use the products or services

36 35 Unrelated Business Income Tax Corporate Sponsorships Corporate Sponsorships Exclusive ArrangementsExclusive Arrangements Exclusive sponsorshipExclusive sponsorship Exclusive provider of goods and servicesExclusive provider of goods and services Internet Sponsorships (hyperlink with no other information) Internet Sponsorships (hyperlink with no other information) Periodicals (student run newspapers) Periodicals (student run newspapers)

37 36 Unrelated Business Income Tax Travel Tours – ( if structured as an - educational activity no UBIT (Rev Rul ) Travel Tours – ( if structured as an - educational activity no UBIT (Rev Rul ) Rental of Facilities (if provide meals and maintenance will be UBIT) Rental of Facilities (if provide meals and maintenance will be UBIT) Fitness Facilities (who is being served & how much is being charged) Fitness Facilities (who is being served & how much is being charged)

38 37 Unrelated Business Income Tax Reporting Reporting Form 990-T Form 990-T New public disclosure requirements New public disclosure requirements IRS Notice IRS Notice Quarterly payments Quarterly payments IRS Publication 598 UBIT IRS Publication 598 UBIT

39 38 Intermediate Sanctions An excess benefit transaction An excess benefit transaction is any transaction in which an economic benefit is provided by an applicable tax- exempt organization, directly or indirectly, to or for the use of any disqualified person, is any transaction in which an economic benefit is provided by an applicable tax- exempt organization, directly or indirectly, to or for the use of any disqualified person, if the value of that economic benefit exceeds the value of the services provided by the disqualified person. if the value of that economic benefit exceeds the value of the services provided by the disqualified person.

40 39 Intermediate Sanctions Applicable tax exempt organization Applicable tax exempt organization 501(c)(3) or 501(c)(4) tax exempt public charity 501(c)(3) or 501(c)(4) tax exempt public charity Includes higher education Includes higher education Does not apply to for profits Does not apply to for profits

41 40 Intermediate Sanctions Disqualified persons Disqualified persons Substantial influence Substantial influence Family members Family members Entities in which any of the above own more than a 35% interest Entities in which any of the above own more than a 35% interest Facts and circumstances test Facts and circumstances test

42 41 Intermediate Sanctions Organization Managers Organization Managers trustee, director, or officer, has similar powers to trustees Rebuttable Presumption of Reasonableness Rebuttable Presumption of Reasonableness IRS notice IRS notice arrangement approved by an independent body - board 2.board obtained & relied on appropriate comparable data 3.Basis for determination was adequately documented Tax Penalties to insiders and possible loss of tax exemption Tax Penalties to insiders and possible loss of tax exemption IRS Publication 557 Tax Exempt Status IRS Publication 557 Tax Exempt Status

43 42 Tax Exempt Bonds Arbitrage – the act of making money w/ money. Borrow at a low rate at the taxpayers expense. With a few exceptions money must be rebated to the gov. Arbitrage – the act of making money w/ money. Borrow at a low rate at the taxpayers expense. With a few exceptions money must be rebated to the gov. Private Use Issues Private Use Issues 501(c)(3) threshold - §145, 5% of net proceeds for unrelated use including issuance costs 501(c)(3) threshold - §145, 5% of net proceeds for unrelated use including issuance costs Governmental entity threshold -10% unrelated use Governmental entity threshold -10% unrelated use Issuance costs – capped at 2% counts twds private use Issuance costs – capped at 2% counts twds private use

44 43 Tax Exempt Bonds Private Use Issues (cont.) Private Use Issues (cont.) Research agreements – original investigation for the enhancement of scientific knowledge – no commercial objective Research agreements – original investigation for the enhancement of scientific knowledge – no commercial objective Rental income Rental income Naming rights Naming rights Record retention requirements – for as the long as the bonds are o/s & three yrs after the final redemption Record retention requirements – for as the long as the bonds are o/s & three yrs after the final redemption Audit alert: TEB division of the IRS has increased staff by 20%. Cliff Gannett the Director states this will increase significantly, the number of audits. The twenty page FY2008 TEB work plan can be found at IRS.gov. Some of the areas under scrutiny include: yield burning, tax and revenue anticipation loans, 501 ( c) 3 charities. Audit alert: TEB division of the IRS has increased staff by 20%. Cliff Gannett the Director states this will increase significantly, the number of audits. The twenty page FY2008 TEB work plan can be found at IRS.gov. Some of the areas under scrutiny include: yield burning, tax and revenue anticipation loans, 501 ( c) 3 charities.

45 44 Charitable Contributions Qualifying donations Qualifying donations Qualifying donees § 170 ( c ) -must be a US entity Qualifying donees § 170 ( c ) -must be a US entity state & local, religious, charitable, educatioal, veterans org, non profit cemetery companies Determining the amount and limitations on deductions -based on donor A.G.I. & Donee, & type of property Determining the amount and limitations on deductions -based on donor A.G.I. & Donee, & type of property Recordkeeping and substantiation requirements. Recordkeeping and substantiation requirements.

46 45 Charitable Contributions Elements of a Charitable Donation Elements of a Charitable Donation Charitable intent detached, disinterested generosity (Comm vs. Duberstein 363 US 278 (1960)) Charitable intent detached, disinterested generosity (Comm vs. Duberstein 363 US 278 (1960)) No substantial benefit to the donor, complete, voluntary and unconditional No substantial benefit to the donor, complete, voluntary and unconditional Delivery org must have full control Delivery org must have full control Acceptance by the donee Acceptance by the donee Quid pro quo gifts part gift and part consideration for good or service Quid pro quo gifts part gift and part consideration for good or service

47 46 Charitable Contributions Types of Contributions Types of Contributions Cash – check, credit card, prom note, IRAs, mailed though not recd on 12/31 is deductible § 1.170A-1b Cash – check, credit card, prom note, IRAs, mailed though not recd on 12/31 is deductible § 1.170A-1b Stocks and bonds – fmv at date of gift Stocks and bonds – fmv at date of gift Real estate – Conservation easements – a lot more scrutiny Real estate – Conservation easements – a lot more scrutiny Tangible personal property – anything you can touch other than lands or bldgs.; full fmv if inst does not dispose in yr given – does not apply to vehicles Tangible personal property – anything you can touch other than lands or bldgs.; full fmv if inst does not dispose in yr given – does not apply to vehicles Intangible personal property - i.e. life ins contracts, oil and gas interest (very complex subject to UBIT) Intangible personal property - i.e. life ins contracts, oil and gas interest (very complex subject to UBIT)

48 47 Charitable Contributions Types of Contributions (cont.) Types of Contributions (cont.) Services and out-of-pocket expenses – no deduction for the value of the service Services and out-of-pocket expenses – no deduction for the value of the service Prizes and awards as gifts Prizes and awards as gifts Recipient does not take into income if certain conditions apply: rcd because of charitable purpose or civic engagement (Nobel prize), no action performed, does not have to perform service and gives the prize to a charity Recipient does not take into income if certain conditions apply: rcd because of charitable purpose or civic engagement (Nobel prize), no action performed, does not have to perform service and gives the prize to a charity IRS Publication 526, Charitable Contributions IRS Publication 526, Charitable Contributions IRS Publication 561, Determining the Value of IRS Publication 561, Determining the Value of Donated Property Donated Property

49 48 Lobbying and Political Activity Restrictions on Lobbying Activities Restrictions on Lobbying Activities Definitions of lobbying- retained for financial or other compensation; makes at least two lobbying contacts; 20% of time in a three month period engaged in lobbying Definitions of lobbying- retained for financial or other compensation; makes at least two lobbying contacts; 20% of time in a three month period engaged in lobbying Lobbying election- pros & cons Lobbying election- pros & cons Lobbying Disclosure Act Lobbying Disclosure Act applies 1.) one ee that is a lobbyist 2.) spends at least $10k per calendar quarter Lobbying expenditures Lobbying expenditures Reporting requirements Reporting requirements – electing & non electing must rpt on Form 990 Sch. A as well as to maintain records that will enable them to calculate and report expenditures

50 49 Lobbying and Political Activity Definition of Candidate Definition of Candidate §1.501 ( c ) (3)-1( c )(3)(iii) an individual who offers himself, or is proposed by others, as a contestant for an for an elective public office, whether such office be national, state, or local §1.501 ( c ) (3)-1( c )(3)(iii) an individual who offers himself, or is proposed by others, as a contestant for an for an elective public office, whether such office be national, state, or local Public Office no IRS definition Public Office no IRS definition Intervention in a Political Campaign Intervention in a Political Campaign Rev. Rul Lists 21 Examples of what is allowed and not allowed Rev. Rul Lists 21 Examples of what is allowed and not allowed

51 50 Political Activity Permissible Political Activities Permissible Political Activities Candidate debates and forums Candidate debates and forums equal opportunity, no fundraising, explicit statement indicating that the inst does not endorse a candidate Student newspaper endorsements Student newspaper endorsements may publish editorials Rev. Rul Use of institutional facilities – no problem Use of institutional facilities – no problem needs to state that inst does not endorse and no fundraising needs to state that inst does not endorse and no fundraising

52 51 Permissible Political Activities Voter registration on campus Voter registration on campus higher ed amendment 1998 required to make forms widely available to students higher ed amendment 1998 required to make forms widely available to students Other voter education Other voter education voter guides must not be biased in favor of a candidate Course credit for participation in political campaigns Course credit for participation in political campaigns Rev. Rul cannot indicate for which party - must be an elective course

53 Resources Tax Department Internal Audit External Auditors Payroll, Human Resources & Other Dpts.

54 53 Resources NACUBOs Taxlist NACUBOs ALIENs listserv ALIENs listserv

55 54 Resources (cont.) NRA assistance NRA assistance NRA tax preparation NRA tax preparation EO Tax Updates EO Tax Updates Se nd a blank to EO-Update-Subscribe

56 55 Resources (cont.) Mr. Lowell G. Hancock Internal Revenue Service LMSB International Foreign Payments International Information Reporting Tel Fax: Internal Revenue Service Federal Bldg / U.S. Courthouse 2 South Main Street., Room 395 Akron, OH

57 56 Resources (cont.) Guide to Federal Tax Issues for Colleges and Universities Guide to Federal Tax Issues for Colleges and Universities Loose-Leaf Binder Loose-Leaf Binder CD-Rom Updated Quarterly CD-Rom Updated Quarterly Federal Tax News for Colleges and Universities Federal Tax News for Colleges and Universities Click on Subscription Services in the left hand column Click on Subscription Services in the left hand column The Tax Law of Colleges and Universities, 2 nd Ed. The Tax Law of Colleges and Universities, 2 nd Ed. Bertrand M. Harding, Jr. Bertrand M. Harding, Jr. Employee Benefit Plans: Audit and Accounting Guide Employee Benefit Plans: Audit and Accounting Guide Publisher: AICPA Publisher: AICPA NACUBO Guide to IRS Audits Laura Kalick, Peter K. Scott NACUBO Guide to IRS Audits Laura Kalick, Peter K. Scott

58 57 RESOURCES Taxation of Charities and Other Exempt Organizations (West Publishing Co, 2003 Moran, Brennen, Jones and Willis). Taxation of Charities and Other Exempt Organizations (West Publishing Co, 2003 Moran, Brennen, Jones and Willis). A Federal Income tax Guide for College and University Presidents A Federal Income tax Guide for College and University Presidents American Council on Education pdfhttp://www.acenet.edu/bookstore/pdf/2002_tax_guide. pdf (free download) pdf

59 58 Resources (cont.) Income Tax Treaties (A-Z) Income Tax Treaties (A-Z) Publication 901, U.S. Tax Treaties Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities Publication 519, U.S. Tax Guide for Aliens Revenue Rulings Online Revenue Rulings Online

60 59 Resources (cont.) Internal Revenue Code Internal Revenue Code Revenue Rulings Online Revenue Rulings Online IRS Website for Students IRS Website for Students

61 60 Resources (cont.) Tax Workshops and Presentations Tax Workshops and Presentations Tax Institute for Colleges and Universities (TIFCU) Tax Institute for Colleges and Universities (TIFCU) May 17-19, 2009 Indianapolis, IN NACUBO Tax Forum NACUBO Tax Forum October 6 -7, 2008 Chicago, IL Chicago, IL

62 61 IRS Priorities for Nonprofit Review & Other Legislative Agendas A. IRS Sets Priorities for Nonprofit Review in 2008 A. IRS Sets Priorities for Nonprofit Review in 2008 Interview with Lois Lerner – Director IRS Exempt- organization Division (12/20/07) Interview with Lois Lerner – Director IRS Exempt- organization Division (12/20/07) B.United States Senate Committee on Finance B.United States Senate Committee on Finance (Baucus, Grassley) Write to 136 Colleges, Seek Details of Endowment Pay-outs, Student Aid (1/24/08) C.Tax-Exempt Bond Financings Compliance Check Questionnaire Form C.Tax-Exempt Bond Financings Compliance Check Questionnaire Form (TEB Work plan FY 2008) (TEB Work plan FY 2008) D.Exempt Organization Executive Compensation Compliance Initiative D.Exempt Organization Executive Compensation Compliance Initiative E.CEP and other examinations in higher education E.CEP and other examinations in higher education F.Governance Concerns F.Governance Concerns G.Form 990 Redesign G.Form 990 Redesign H.Form 990T Public Disclosure Requirements H.Form 990T Public Disclosure Requirements

63 62 Risk Management Issues Strategic Risk – Not supporting institutional goals Strategic Risk – Not supporting institutional goals Financial Risk – Penalties, interest & fees Financial Risk – Penalties, interest & fees Compliance Risk - Compliance Risk - Operations Risk – Not effective & efficient Operations Risk – Not effective & efficient Public Relations Risk- Reputation Public Relations Risk- Reputation

64 63 WITH APPRECIATION Susan Brooks Associate Vice Chancellor of Finance Associate Vice Chancellor of Finance UNC Charlotte 414 Reese Financial Services Charlotte, NC Beverly I. Moran Professor of Law and Sociology Vanderbilt University Law School st Avenue South Nashville, TN College Business Management Institute & The University of Kentucky College Business Management Institute & The University of Kentucky

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