State schools and private nonprofit universities in California will need to be on the alert in their bookkeeping, as more than 30 state schools and private nonprofits throughout the country have already been subject to audits by the IRS this year. The agency says these audits were conducted to determine if there were tax errors or omissions related to various forms of business income produced by the schools.
According to the IRS, unrelated business income -- such as that produced by bookstores, restaurants and sports arenas -- is federally taxable. The recent probe was in response to surveys that the IRS sent out in 2008 to over 400 schools nationwide. The survey determined that many state and private universities were not fully accounting for or disclosing all income that could be considered taxable.
As a result, over 30 colleges, including Harvard University, the University of Texas, the University of North Carolina and Cornell University, are either in the process of an audit or have completed one.
California universities and the businesses associated with them may benefit from looking into their own records and filings to ensure tax compliance. News of widespread audits may also serve as an eye-opener for taxpayers with less income than large educational institutions. No one is exempt from the gaze of the IRS, and anyone may be subject to an audit. That is why it is important for taxpayers in all brackets to understand their rights and responsibilities should a notice of an audit appear in the mail.
Source: Bloomberg, "Cornell Joins Harvard as IRS Examines Ivy League Schools," Michael McDonald, May 17, 2012