Bloomberg News

Cornell Joins Harvard as IRS Examines Ivy League Schools

May 17, 2012

Cornell University campus, in Ithaca, New York. Photographer: Dennis Macdonald/Getty Images

Cornell University campus, in Ithaca, New York. Photographer: Dennis Macdonald/Getty Images

Cornell University was audited as part of the Internal Revenue Service’s probe of tax compliance at U.S. colleges, which targeted more than 30 state schools and private nonprofit schools such as Harvard University.

Joanne DeStefano, Cornell’s chief financial officer, told a congressional committee yesterday in Washington that the IRS completed its probe in March, according to a copy of her testimony. She said at a hearing on tax-exempt organizations that the university’s tax filings were examined along with its operations that produce so-called unrelated business income, which is federally taxable.

The IRS has been stepping up scrutiny of both private nonprofit universities and public schools as they expand and collect more revenue from operations such as bookstores, restaurants and sports arenas. While the institutions are tax- exempt, they are supposed to pay federal tax on any income that is unrelated to their educational and research missions, for instance when the public uses hotels they open for faculty and alumni.

The IRS found in a survey it sent in October 2008 to 400 universities that many are failing to fully account for and disclose what may be taxable income. The survey, which also probed compensation and endowments, led to the audit of more than 30 of the institutions, including the University of Texas at Austin and the University of North Carolina.

‘Tax-Exempt Status’

Lois Lerner, the IRS’s director of exempt organizations, has said she expects the agency to finish its audits this year and issue a report. Lamar University, which is part of the state university system in Texas, said in January it paid $9,481 in unrelated business income taxes as well as $23,171 in payroll taxes as a result of the probe.

“The audit confirmed Cornell University’s tax-exempt status and accepted the university’s 990 return as filed,” Simeon Moss, a spokesman for the university, said in an e-mail, referring to the tax form nonprofit institutions use for federal filings.

Harvard and Cornell, which was founded in 1865 and is based in Ithaca, New York, are among eight schools in the U.S. Northeast that make up the Ivy League. John Longbrake, a spokesman for Cambridge, Massachusetts-based Harvard, said in an e-mail that the IRS hasn’t finished auditing the university.

To contact the reporters on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net


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