Moody’s Investors Service, the pivotal ratings agency, is adapting like all businesses during the recession. This means, however, that requirements for those organizations in need of a good rating are changing as well. As Inside Higher Ed reports, cash on hand liquidity, once no more than an afterthought for colleges and universities, is now one of the key factors in determining a quality Moody’s rating.
Colleges and universities continue to struggle through the gray areas of new Form 990 reporting requirements. Executive compensation is a strong focus of new IRS scrutiny, however, specific guidance is lacking for several new provisions. Colleges and universities are now required to include certain nontaxable perks in the calculation of compensation packages. As the Boston Globe reports, university-provided presidential housing is creating difficulties in comparison for many institutions.
Colleges and universities vary widely in interpreting the value of a president’s living quarters. Some universities, like Boston University, calculate the full market value of the entire house. BU spokesman Steve Burgay gave no specific reason for their chosen methodology. “We just decided to err on the side of valuing the entirety of the house.”
The IRS recently released another in the series of interim reports for the Colleges and Universities Compliance Project. Initiated in October 2008, the Project follows 400 public and private colleges and universities in three broad size categories. The institutions are followed in compliance and reporting activities related to endowment management, investment, executive compensation, unrelated business income and governance.
The Hiring Incentives to Restore Employment (HIRE) Act provides a Payroll Tax Holiday for higher education institutions that hire and retain previously unemployed workers. This provision applies to wages paid beginning after March 18, 2010, and ending on December 31, 2010.
Qualified employers are forgiven their 6.2 percent share of the “old age, survivors, and disability insurance (OASDI)” component of Social Security payroll taxes for qualified employees performing services in a trade or business.
For purposes of this provision, a qualified employer is any employer other than the United States, any state, any local government, or any instrumentality of the preceding. However, a qualified employer will include any public higher education institution.
The Congressional Budget Office (CBO) has published a study on higher education institutions’ use of tax-exempt bonds as they relate to high-yield securities held. This study came at the request of U.S. Senator Charles Grassley (R-Iowa) in 2007, continuing his legislative scrutiny on business and tax practices of higher education institutions.
As Inside Higher Ed reports, holding high-yield securities while simultaneously issuing tax-free bonds, could be a violation of arbitrage law.
With many divergent organizational objectives that depend upon the effective use of information technology resources, nonprofit organizations often have a greater information technology risk assessment need than commercial enterprises.
The objective of an IT risk assessment is to ensure that information technology architectures, applications, resources, etc., properly align with an organization’s business objectives. The most important concept pertaining to any risk assessment process, whether it be at the enterprise level or specific to a functional area, such as information technology, is the idea that the performance of the risk assessment is not a single event.
As reported last week by The Statesman, the IRS recently launched audit efforts at several colleges and universities throughout the country, focusing on executive compensation practices and income unrelated to the university’s educational mission. According to Patti Ohlendorf, vice president for legal affairs at the University of Texas:
“IRS agents will be on site periodically, and they are asking us for information regarding various campus activities, and they will review those activities with respect to income and expenses. The exact details I really can’t give you since it just started. It will take some number of months.”
Earlier this month, IRS Tax Exempt and Government Entities Division (TE/GE) Director of Rulings and Agreements Robert Choi discussed some of the big tax changes facing nonprofit organizations in the year ahead.
Filing Threshold for Form 990-EZ
In addition to changes to the form itself, eligibility requirements for the Form 990-EZ will change for 2009 tax year filings. If your organization’s assets total less than $1.25 million and gross receipts total less than $500,000, your organization is eligible to file the Form 990-EZ.
Click here for our previous post on this topic.
In 2008, the IRS circulated 400 lengthy questionnaires to a variety of public and private colleges and universities. These questionnaires required a significant amount of information and dug most deeply into the areas of compensation, unrelated business income and endowments — all obvious areas of concern by the IRS and/or Congress.
Ronald Schultz, Senior Technical Advisor for the IRS, gave an update on the status of this process during a presentation at the AICPA Not-For-Profit Conference on June 11th. He stated that the response rate was very good but did not discuss any repercussions for colleges who did not respond. The IRS plans to issue an initial report on this project by the end of 2009. This report should provide an interesting assessment of how the IRS views compliance in the higher education sector.
