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IRS Looking Into Tax-exempt Status For Universities

This story was written by Maya Srikrishnan, Daily Texan

U.S. colleges and universities are expected to give a detailed response to an IRS-issued survey about higher education finances within the next few months.

The recently released 42-page questionnaire requires colleges to divulge a wide array of financial data, including hotel operation, commercial research, executive compensation and endowment usage.

IRS spokeswoman Lea Crusberg said the department had recently devised a similar form for hospitals and is now beginning to look at colleges and universities to make sure they are in compliance with the regulations that allow nonprofit organizations to remain tax-exempt.

The UT System has not yet received the survey, said Matt Flores, a UT System spokesman.

The tax rules are such that not-for-profits have to pay income tax on for-profit activities, said accounting professor Michael Granof. Colleges are earning all this money from unrelated businesses, and their endowments are earning too much money. The IRS is going to be questioning whether those are really businesses and have to pay income taxes.

Granof said, for example, that if a university houses a museum and has a museum store, the revenue from the museum store could be considered by the IRS as unrelated to the mission of the nonprofit university.

UT just built the AT&T hotel, he said. That might raise questions. It depends on the extent we use it as a conference center and to the extent we use it as a hotel to people non-related to the University.

Congress has expressed concern over the activities of universities recently, Granof said.

Sen. Charles Grassley, a Republican from Iowa serving on the Senate Finance Committee, said he has been pushing the IRS to tailor its tax form for tax-exempt groups to hospitals and universities.

This questionnaire is overdue, he said. Colleges and universities should be much more transparent about their activities, just as tax-exempt hospitals are being asked to do. Transparency brings accountability.

Grassley said as college tuition all over the country is increasing, colleges need to show they are trying to control costs and provide as much financial aid as possible.

Universities need to show they are making good use of their tax exemption and other federal subsidies they receive, he said.