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It’s The Most Wonderful Time (For 990 Tax Filings) Of The Year

As the nation recovers from the latest series of winter storms, let the rise of temperatures serve as a reminder of the incoming season – tax filing season. For institutional non-profits such as colleges and universities, this means the filing of the Form 990, a required informational tax return of the IRS. This year’s 990 reporting will have heightened scrutiny, particularly on executive compensation in the higher education community, in light of recent findings by the IRS from its Colleges and Universities Compliance Project.

The deadline for filing the Form 990 is the 15th day of the fifth month following the close of an organization’s fiscal year. For colleges and universities operating on a calendar year tax basis, this means May 15th. Among the components required for disclosure on the Form 990 is compensation paid to directors, officers, key employees, and highly compensated employees of the organization. While institutions may have familiarity with this requirement, all should be aware of how the IRS has sharpened its toolbox to analyze responses in this area.

Last year, the IRS completed a five-year project in which it analyzed responses from questionnaires sent to 400 colleges and universities as part of its Compliance Project. In its Final Report, the IRS cited a number of areas of noncompliance in which errors resulted in wage adjustments totaling $36 million, with taxes and penalties of $7 million. The areas of noncompliance included:

  • Deferred compensation which had not been accounted for as income due to payments not being conditioned upon future performance of substantial services to establish a substantial risk of forfeiture;

  • Additions, deferrals and loans relating to 403(b) plans in excess of permitted limits;

  • Failure to include the value of personal use of cars, houses, social club memberships and travel;

  • Misclassification of employees as independent contractors;

  • Failure to withhold taxes for wages paid to non-resident aliens; and

  • Failure to include value of certain graduate tuition waivers and reimbursements.

With the IRS’ increased knowledge of executive compensation arrangements in the higher education space and the transparency provided by the current Form 990, it is essential that institutions obtain appropriate advice on the categorization and treatment of compensation arrangements for senior leadership. The rules governing the vesting and reporting of certain benefits, particularly retention incentives and certain perquisites frequently provided to college leadership, are extremely technical in nature and lend themselves to confusion.

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About this Author

Tyrone Thomas, Mintz Levin Law Firm, Washington DC, Labor and Employment Law Attorney

Tyrone advises boards, presidents, and other senior executives of colleges and universities on terms for employment and consulting agreements.  He frequently provides counsel regarding best practices for compensation, benefits, and post-employment covenants for executive contracts.  He has prepared numerous deferred compensation plans, performance incentive programs and separation agreements for health care systems, foundations, trade associations and academic institutions.  In the course of his practice, he has advised on executive employment arrangements involving over 100 academic...