Finances of Universities Face Scrutiny From IRS

University of California Likely to Be Required by IRS to Submit Detailed Financial Information

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Aligning with UC President Mark Yudof's vow for greater accountability in higher education, the Internal Revenue Service is now requiring hundreds of colleges and universities to provide detailed financial information.

Under the first phase of the Colleges and Universities Compliance Project, the IRS will issue a lengthy questionnaire, centered on revenues and expenses, to roughly 400 institutions nationwide. The IRS began sending out questionnaires last Wednesday.

The questionnaire, which will collect information on executive compensation and endowments, among other finances, was sent to a cross-section of small, mid-sized and large private and public four-year institutions, said IRS spokesperson Jesse Weller.

As the largest public university in the nation, the University of California could likely be required to participate in the project.

Though the UC system has not yet received a questionnaire, officials said the university is prepared to fully comply with the project if it is required.

"We have not received a questionnaire yet, but we have put all of our campus controllers on notice," said UC spokesperson Chris Harrington. "Should we receive a questionnaire, we're prepared to respond to it in a timely manner."

The questionnaire is part of a larger effort by the IRS to learn more about the finances of tax-exempt organizations, Weller said, and comes on the heels of a similar initiative focused on the finances of tax-exempt hospitals.

According to Weller, the compliance project could help clarify how the finances of different institutions are working.

"(Higher education) is an area which the IRS felt we needed to look more closely at to find areas where we need more education and outreach, or more scrutiny and compliance," Weller said.

The IRS project falls under a recent trend for greater transparency and accountability in higher education.

Two weeks ago, the university launched a new report that provides comprehensive data about admissions, enrollment and salaries, among other figures.

Advanced by Yudof, the report has put tools in place to be used for long-term strategic planning, accountability and, most of all, transparency, Harrington said.

"Faculty, policy makers and students can all look at this report and see in what areas we're making progress and where we need improvement," he said.

The IRS questionnaire also follows months of congressional debate focused on accountability and oversight of colleges and universities.

Sen. Chuck Grassley, R-Iowa, a ranking member of the Committee on Finance, has been a long-time advocate of including university-specific information on the IRS's disclosure form for tax-exempt groups. He has also been pushing for stricter oversight of university endowment spending.

On Wednesday, Grassley released a statement welcoming the IRS questionnaire as an overdue effort to

increase accountability.

"As tuition increases go through the roof and families are struggling, colleges need to show they're going the extra mile to control costs and provide financial support to students," he said. "They need to show they're making good use of the tax exemption and other federal subsidies they receive."

The IRS expects to receive questionnaire responses in the following months and plans to issue a report on the project in 2009.


Kelly Fitzpatrick covers higher education. Contact her at [email protected]

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