The Internal Revenue Service plans to audit Harvard University and about 39 other colleges as part of an overall review of tax-exempt nonprofit organizations.

The IRS sent compliance questionnaires in October 2008 to approximately 400 colleges and universities asking about their business income, endowments and executive compensation practices (see IRS to Question Colleges on Income and Endowments). The IRS said it wanted to gather information from the schools about how they report revenues and expenses from their trade or business activities, classify their activities as exempt or taxable, and calculate and report income or losses on taxable activities.

The questionnaire also gathered information regarding how the organization invests and uses its endowment funds and determines the compensation of highly paid individuals. Senate Finance Committee ranking member Charles Grassley, R-Iowa, has been pressing the IRS to examine more closely how tax-exempt universities and colleges are financed.

As part of the overall review, the IRS said it would also conduct “team examination program” audits of several colleges and universities to follow up on the questionnaire. Harvard revealed in recent bond-offering documents that it was one of the schools selected for a closer look.

“We were notified that our university would be one of these institutions that will be examined for the purpose of building a better understanding of this portion of the tax-exempt sector,” said Harvard spokesman John Longbrake. “Given the size and complexity of our institution, it is not a surprise that we were one the several institutions selected for the follow-up examination.”

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