IRS Probes Campus Finances in Rare Audit

    The Internal Revenue Service recently broke ground on an extensive and
    detailed audit of UCSD’s 2005 payroll information, a relatively
    uncommon procedure among universities that has nevertheless been
    characterized as routine by campus officials.The Internal Revenue Service recently broke ground on an extensive and
    detailed audit of UCSD’s 2005 payroll information, a relatively
    uncommon procedure among universities that has nevertheless been
    characterized as routine by campus officials.
    “While it is not unusual for UCSD to be audited by outside nonprofit
    entities like granting agencies, UCSD has not had frequent audits by
    the IRS,” UCSD Deputy Director of University Communications Dolores
    Davies said in an e-mail. “We can only assume that the reason for the
    audit is that UCSD was just selected at this time on some random basis.”
    Specifically, the IRS is reviewing taxes remitted on compensation and
    benefits of higher-level administrators, athletic coaches and a sample
    research unit, Davies said. The IRS will also be looking at accounts
    payable, student accounting and other payroll-related transactions in
    an attempt to verify that tax information was properly reported to the
    federal government.
    IRS spokesman Raphael Tulino had no comment regarding the audit, and
    would neither confirm nor deny that an audit was even taking place.
    But Marvin Friedlander, the chief of the IRS’ exempt-organizations
    technical branch — which oversees colleges and universities — told the
    San Diego Union-Tribune last month that the IRS currently audits public
    universities when it believes business income or employment taxes are
    not being properly reported.
    Friedlander said that only about a dozen private universities are in
    the process of being audited, and that the number of public
    universities is even smaller.
    UCSD’s audit is unrelated to a larger plan enacted last year by the IRS
    to more critically examine how colleges and universities report income
    generated from activities deemed by the agency as unrelated to their
    academic missions, including travel tours, intellectual property and
    advertising revenue generated from sporting events and television
    shows.
    Set to begin next year, the IRS has not yet decided how many campuses
    will receive questionnaires as part of “mini-audits.” Depending on the
    information the academic institution provides to the IRS, it could
    later be selected for a full audit.
    Friedlander said that complaints by businesses were part of the reason
    that the IRS decided to revamp its policies regarding exempt
    organizations, which in addition to universities include hospitals and
    political action committees.
    “We’ve had complaints from some businesses that felt there is unfair
    competition with universities, in the area of travel tours and the
    production of TV shows and movies,” he said. “Some businesses felt that
    there was not a level playing field. This is a way for us to look and
    see if there’s a problem.”
    The last time UCSD — which files a consolidated annual tax return for
    nonprofit entities — was scrutinized by the IRS was about 10 years ago
    as part of a UC-wide audit of unrelated business income.
    The current audit should be finished by March 2008, Davies said,
    because IRS representatives are usually on campus only about three to
    four days per month while university finance staff members continue to
    gather information for them based on formal requests.

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