The Internal Revenue Service has opened examinations of over 30 colleges and universities as part of an ongoing investigation into the business activities of tax-exempt academic institutions.

The examinations are focusing primarily on unrelated business income and executive compensation issues. The IRS released an interim report on Friday summarizing responses to compliance questionnaires sent to 400 public and private colleges and universities in October 2008 (see IRS to Question Colleges on Income and Endowments). Colleges and universities make up one of the largest nonprofit segments in terms of revenue and assets.

The interim report contains preliminary information on the respondents’ organizational structures, demographics, exempt and unrelated business activities, endowments, and executive compensation, as well as governance practices. Respondents are divided into three groups based on size of student population.

“This compliance project, like our previous one on nonprofit hospitals, gives us a lot of valuable information on activities conducted by those organizations that will help us in our enforcement and services efforts,” said Lois Lerner, director of the IRS Exempt Organizations, in a statement. “Our findings will be reported in a final report after we have completed our analysis of all of the data.”

The IRS said it continues to analyze the data, and additional information will be included in a final report.

Among the findings in the interim report are that large colleges and universities reported the highest percentage of respondents with related entities (96 percent compared with 82 percent for midsized organizations and 45 percent for small organizations).

Related tax-exempt organizations were the most commonly reported type of related entity for all size categories, followed by taxable corporations and trusts, disregarded entities, and then partnerships.

Large organizations reported the highest percentage of respondents that were controlling entities (45 percent compared with 34 percent for midsized organizations and 26 percent for small organizations). The number of controlled organizations of an entity increased with student size of the organization.

Only 26 percent of large respondents with at least one controlled entity reported receiving any income from controlled entities (29 percent of the small and 45 percent of the midsized organizations did so). Less than half of the organizations reporting income from controlled entities on the questionnaire indicated that they reported income from controlled entities on their Form 990-T.

Nearly half (48 percent) of small colleges and universities reported that they have never filed a Form 990-T, compared with 29 percent for midsized colleges and universities and 4 percent for large colleges and universities.

Almost all organizations reported either having an endowment fund or that another organization held or maintained an endowment fund on their behalf (87 percent of small, 97 percent of midsized, and 100 percent of large organizations). Organizations of all sizes reported investing endowment assets in a variety of investments; U.S. fixed income and U.S. equity investments predominated.

The majority of colleges and universities reported engaging in foreign investments, with 53 percent of small, 67 percent of midsized, and 82 percent of large respondents reported investments in non-U.S. equities.

The reported compensation of the highest paid officer, director, trustee or key employee was highest for the large colleges and universities (average approximately $428,000; median $361,000) and lowest for the small colleges and universities (average $202,000; median $174,000).

Of the highest paid employees, a relatively small number reportedly received compensation from related organizations (five in the case of small, three in the case of midsized, and 13 in the case of large organizations). For these individuals, in the case of small and large organizations, on average approximately half of the compensation paid was from related organizations (approximately one-quarter in the case of midsized organizations).

The average and median total compensation (compensation from the respondent and from related organizations) for these 21 individuals was: $269,000 average, $202,000 median in the case of small organizations; $410,000 average, $203,000 median in the case of midsized organizations; and $936,000 average, $698,000 median in the case of large organizations.

Overall, very few colleges and universities reported that their coaches are not employees of the organization. The percentage of employees who received NCAA athletic income increased with organization size.

More than 60 percent of the colleges and universities in each size category reported they did not rely on outside advice on unrelated business income issues, such as determining whether business activities were related or unrelated to the organization’s exempt purpose, the allocation of expenses between related and unrelated business activities, and intercompany pricing between the organization and related entities.