Penny Wood

In October 2008, the IRS sent 400 colleges and universities, both public and private, compliance check questionnaires about the organization’s tax year ending in 2006. This was to determine adherence to certain requirements, to help educate organizations about their reporting requirements and to increase voluntary compliance. The questionnaires focused on three main areas: unrelated business taxable income, endowment funds and executive compensation practices. The document also focused on governance issues.

On May 7, 2010, the IRS released an interim report summarizing the responses to these questionnaires. The report covers data reported by 344 colleges and universities of various sizes (177 private and 167 public organizations). It contains preliminary information on the organization’s structures, demographics, exempt and unrelated business activities, endowments, executive compensation and governance practices.

Not only is this report beneficial for the college and university sector, but it also is a useful tool for the entire not-for-profit community. It shows the areas the IRS is concerned with, including general areas that apply to all exempt organizations such as organizational structure, unrelated business activities, compensation and governance.

For instance, the report shows about 48 percent of small, 29 percent of medium and just 4 percent of large colleges and universities reported never filing a Form 990-T and the most common unrelated business income activities reported included advertising and facility rental. Regarding governance, more than 80 percent of organizations reported having a conflict of interest policy covering members of the ruling body and top management officials. It is easy for a not-for-profit to consider how it compares to these and other statistics.

Your organization should take advantage of this report. Again, one of the objectives of this project is to educate organizations about their reporting requirements and to increase voluntary compliance. Is your organization conducting similar activities? Is your organization meeting reporting requirements? Does your organization compare to similar organizations of the same size? These are just a few questions that you should be asking while reading this report.

The focus areas in this report are now part of the Form 990 required to be filed by most exempt organizations at least annually. Answers to these questions and even narrative descriptions regarding such topics are now required. If your organization does not compare or, for that matter is not in compliance, it will be evident. You should address these issues now, seek guidance and learn how your organization stacks up. For more information, contact your BKD advisor.