IRS Sets Guidelines for College Audits

The Internal Revenue Service (IRS) has proposed a detailed set of guidelines for conducting audits of colleges and universities, which are traditionally exempt from paying most taxes.

The move marks the first time the IRS has attempted to codify its procedures for investigating institutions of higher learning, according to Marcus S. Owens, director of the agency's Exempt Organizations Technical Division.

"The procedures are designed to put a framework on the process and start the audit team off on the right foot when they approach the audit of a college or university," Owens said. "There have been audit guidelines in other areas, but this is the first time colleges and universities have been focused on in that way."

The proposed guidelines mark an attempt by the IRS to enhance enforcement of tax laws relating to nonprofit organizations, Owens said.

"Certainly, the level of voluntary compliance with the unrelated business income tax laws is, we suspect, fairly low," Owens said. "At the fringes, there are some colleges and universities engaged in some pretty aggressive investment type activity [including] limited partnerships and joint ventures of various kinds."

The IRS is currently awaiting reaction to the proposed audit procedures from universities, Owens said.

Harvard Vice President for Finance Robert H. Scott said he is not certain whether the University will comment to the IRS on the guidelines. John H. Shattuck, vice president for government, community and public affairs, said the possibility of a response from the University is being deliberated.

"I'm in the process of discussing this with the general counsel's office," Shattuck said.

Responses to the guidelines are due by March 12.

Officials from the University's Office of the General Counsel were not available for comment last night.

According to Scott, the suggested procedures seem exhaustive.

"It's certainly my impression...that they were going into glorious detail over something that seemed to be off-base," Scott said. "As I read it, it just seemed that it was unnecessary that they would need to see all the things they would [want] to see."

Owens said most of the comments on the new rules received by the IRS to date relate to the extensive detail of the 38-page document of guidelines.

"The reaction we have received has been along the lines of noting the comprehensiveness of it," he said.

The release of the guidelines comes as the IRS performs a series of unusually thorough audits of several colleges and universities.

Those investigations, known as "coordinated audits," began in September, when teams of IRS agents requested access to the financial records of seven universities, including Princeton and Stanford. The number of coordinated audits has "expanded slightly, by a couple [of universities]" since then, Owens said yesterday.

Owens declined to comment on whether Harvard will be investigated, but the University has not been notified that an audit is pending, according to Scott.