The "Tax Translator" offers much needed advice and guidance on tax compliance for institutions of higher learning College and university officials often are unaware of their institutions' tax obligations. Especially for institutions without designated tax compliance officers, the consequences of such ignorance can devastating. Based on its author's decades of experiences as a tax manager at three universities, this handbook was written for all university staff involved with tax compliance from the account clerk in the Accounts Payable Department, up through vice presidents, controllers, treasurers and directors. Steve Hoffman explains the core principles and practices that inform current tax policy and develops a framework for building a system for effective tax compliance, reporting and filing.
* Satisfies the urgent demand for timely, authoritative advice and guidance on a area of increasing concern for colleges and universities * Sheds new light on the impact of current tax obligations for both four-year and community colleges, which are often left out of the discussion * The Federal Government has recently stepped up its enforcement of tax law compliance for colleges and universities
Steve Hoffman is a tax professional with long experience in taxation for colleges and universities as well as nonprofit organizations. He is a former tax manager for The Ohio State University and George Washington University. He is also a former Director in the Business and Finance Division of West Virginia University. He publishes the Tax Update Newsletter for Colleges and Universities, which is distributed throughout the United States. He spent fifteen years at the Internal Revenue Service and is also a Certified Financial Planner.
Preface xiii Acknowledgments xxi About the Author xxiii 1 Awareness 1 Defining Tax Exempt 1 The Six Steps of Tax Compliance 2 The Five Things You Need to Do First 4 Task 1: Look at Management 4 Task 2: Assess the Current State of Your Tax Compliance Program 5 Task 3: Develop a Team Approach 7 Getting a Hold on the Process 7 The IRS Is Paying Attention 9 Why You Should Care 12 Task 4: Assess Your Risk 13 Task 5: Review IRS Communications 17 Open Them! 17 Statistics on Tax Staff 19 The Different Kinds of Tax 20 Employment Tax: The First Tax to Know about Because It s the Largest One for Your University 20 Unrelated Business Income Tax (UBIT): Not a Distant Cousin Tax but a Close Relative to You Tax 21 Sales Tax: It Is Close to Home 21 Excise, or Exercise-Your-Checkbook Tax 22 Borrowed Money Can Mean Tax, Too 22 Overseas (International) Tax 22 In Summary: Build Your Village 24 2 Identification 25 Steps in Identifying Your Needs 26 Independent Contractors 27 Unrelated Business Income Tax (And What Does Macaroni Have to Do With It?) 30 UBIT Applies to All and Can Be Necessary 31 It s Okay to Have Unrelated Business Income 32 The IRS Cares about UBIT 32 The Three Tests for UBIT 34 The Trade, or Business, Test 35 Regularly Carried on Test 36 The Not Substantially Related Test 37 Advertising Is Always Subject to UBIT 40 Things You Generally Don t Have to Worry About: Common Exceptions to UBIT 40 Convenience Exception 41 Go Ahead, Ask Around: The UBIT Questionnaire on Campus 41 Allowable Deductions from UBIT 43 Allocating Expenses: The IRS Hasn t Clarified 43 Unrelated Debt-Financed Income: Got a Bonded Building? 45 Research as UBIT 45 Foreign Students: The IRS Calls Them Nonresident Aliens 46 Sales Tax 48 Identifying Sales Tax Savings in Other States 50 Employment Tax and Fringe Benefits 50 Excise Tax 52 Overseas and International Tax 53 In Summary 54 3 Compliance 55 Policies 56 Enforcing Policies 58 Give Them the Right Tools for the Job 60 Centralize the Tax Responsibilities 63 Keep Tax at the Forefront of Your Mind 64 Fringe Benefits 67 No Additional Cost Services 68 Qualified Employee Discounts 69 Working Condition Fringes 69 De Minimis Fringes 70 Qualified Transportation Fringes 71 Examples of Common Fringe Benefits 72 University-Owned Automobiles 72 University-Owned Airplanes 73 Professional Dues, Publications, and Meetings 73 Travel and Entertainment Expense Reimbursements 73 Supper Money and Taxi Fares 74 Gifts and Awards 74 Athletic Facilities 74 Spousal Travel 75 Free or Discounted Theater or Athletic Tickets 75 Club Memberships 76 Domestic Partners 77 Leave Donation or Sharing Programs 77 Cell Phones 77 In Summary 78 4 Reporting 81 Questions About Reporting Tax Obligations, Answered 81 When are the Tax Deposits and Tax Forms Due? 82 Who Is Preparing the Tax Forms? 82 How Do You Know They Are Done? 83 How Do You Learn about Lapses of Reporting? 83 When Reporting Begins 84 Payments to Human Research Subjects 85 Getting People Used to Thinking About Taxes 86 The Tax Calendar 87 In Summary 89 5 Monitoring 91 Policies And Procedures 92 Consistency and Ease of Use 93 Provide Multiple Paths to Information 94 Simulated Audit 98 Your Tax Manager Position 99 In Summary 100 6 Tax Nirvana 103 The Land of ahh ... 103 You Can Finally Rest 104 Passing the Baton to You 105 The Tax Pyramid Compliance Program Steps, Simplified 106 Awareness Simplified 107 Identification Simplified 107 Compliance Simplified 108 Monitoring Simplified 108 Reporting Simplified 108 Tax Nirvana Simplified 108 In Summary 109 7 Your Audit Defense 111 Building An Audit Defense 111 Setting the Tone 112 Types of Audits 114 Before the Audit 115 During the Audit 116 After an Audit 122 You Don t Have to Go It Alone 125 Hire a Tax Manager 125 Centralize All Tax Reporting Functions to the Extent You Can 125 Monitor and Control Tax Compliance at Your University 126 Getting Your Bearings 126 Concluding Remarks 129 Appendix 131 What a VP Wants from a Tax Manager 131 A Knowledgeable Tax Staff That Understands Laws and Regulations as They Apply to Higher Education 132 A Tax Staff That Understands They Work for the University, Not the IRS 132 A Tax Staff with a Calm Approach 133 A Tax Staff That Solves Problems Creatively 133 A Tax Staff with Personal Detachment 134 A Tax Staff Willing to Work with Others to Achieve Reasonable Results in a Tax Issue 134 A Tax Staff Willing to Accept Risk 135 A Tax Staff That Knows the CEO/CFO Is in Charge 135 A Tax Translator Guide to UBIT Determination 137 UBIT Compliance Checklist 160 Unrelated Business Income 160 Description of Activity 162 General 162 Advertising and Sponsorship 163 Services 164 Products 165 Rental Arrangements 165 Rental of Property 165 Foreign Activities 166 Foreign Accounts 166 Foreign Offices 167 Foreign Grants 167 Foreign Employees 167 Investments in Foreign Entities 168 Other State Activities 168 Commercially Sponsored Research 168 Partnerships and Joint Ventures 169 Activities/Expenditures 169 Political 169 Definition 169 Lobbying 169 Definition 170 University of Central Florida UBIT Questionnaire 172 University of Notre Dame UBIT Questionnaire 175 Index 177