The Internal Revenue Service’s recent investigation of colleges and universities should not have an effect on TCU, a university official said.
Brian Gutierrez, vice chancellor for finance and administration, wrote in an e-mail that the university is always careful about tax compliance in case an inquiry is received and has not been contacted about its tax return.
Clay Sanford, the IRS media relations agent for North Texas, said the IRS is determining whether colleges and universities are correctly paying federal taxes owed on transactions that are not related to their main nonprofit activities, also known as unrelated business income.
Unrelated business income is any income not connected to the educational basis of the organization’s exemption, Sanford said. He said an organization would jeopardize its tax-exempt status if it ceased to be operated for its nonprofit purposes.
Sanford said that if a local grocery store were to pay TCU for the use of a university parking lot, it would qualify as unrelated business income for the university.
The IRS sent out detailed questionnaires to both private and public universities regarding their compensation policies, Sanford said.
Gutierrez wrote in an e-mail that the university was previously contacted about compensation in August 2005 with questions regarding a bond issue related to construction. Gutierrez said the IRS wanted to make sure that the money allotted for construction was being used only for construction and not other university activities. The IRS did not find any problems that required financial adjustments to the school’s tax return or records, he said.
“The questions were all very routine having to do with how the funds were spent,” Gutierrez wrote. “We supplied all the information they asked for and do not expect further questions.”
Sanford said the two largest tax-exempt sectors of the economy are health care and education. He said the IRS released similar questionnaires to hospitals in 2006 focusing on community benefit and executive compensation.
“Even though an organization is recognized as tax-exempt, it still may be liable for tax on its unrelated business income,” Sanford said.
The IRS began investigating universities last October, Sanford said. He declined to comment on any universities’ involvement with the investigation, including TCU’s.