Higher Education Tax Updates
February 2008

403(b) Plans Will Require Audit in 2009

Beginning with the 2009 plan year, all 403(b) plans will require an audit by an independent accountant and will be required to file Form 5500.

Currently, there are limited instances which require the filing of Form 5500 for 403(b) plans.

IRS Changes to Form 990 Extension Procedures

The IRS recently issued Notice 1375 which provides that the IRS will now send a response to a request for extension to notify filers of the action taken (Notice CP 211 A). However, with regard to the second extension request, the IRS will no longer be able to send the request to a third party designee without a power of attorney filed in advance.

Also, Notice 1369 describes some errors in extension notices received by some organizations.

"If you filed an extension for Form 990-T with a due date of April 15, the extended due date on Notice CP 211 A is correct. If you filed an extension for Form 990-T with a due date of May 15, the extended due date on Notice CP 211 A is incorrect. The extended due date is November 15. "

"If after filing your return you receive a notice charging you a penalty, please send us a copy of the (Notice CP 211 A), Notice 1369, and a copy of your extension as filed so we may correct your account."

Legislation to be Introduced to Update IRS Cell Phone Policy

BNA reports that House Ways and Means Committee member Sam Johnson (R-Texas) is planning to introduce legislation to remove cell phones and similar devices, such as Blackberries, from the statutory definition of listed property under IRC Section 280F(d)(4)(A)(v). As a result, employers would no longer be required to track personal use by employees, which is near impossible given the various rate plans offering free or unlimited minutes or the number of text messages, instant messages, and emails an employee may send and receive in a day.

“Right now, the law does not require employers to track the use of the phone at an employee's desk or the use of e-mail or computers for personal purposes,” Johnson said. “I think the law needs to be changed to bring it up to date with the fact that their office cell and Blackberry is just an extension of their desk phone and computer.”

BNA also reports that "According to the Johnson aide, there currently is not a cost associated with this proposal, because IRS has not yet collected any money under the current law. Johnson has received complaints from constituents about auditors looking into this situation, but IRS auditors have not yet begun enforcement activities. If it is eventually decided that the proposal carries a cost, an offset will have to be included so the legislation complies with pay-as-you-go budgeting."

IRS Updates the Taxable Fringe Benefit Guide

The IRS Office of Federal, State, and Local Governments (FSLG) has posted a revised Taxable Fringe Benefits Guide.

The comprehensive guide covers taxation of common fringe benefits. With increased audit activity by the IRS, particularly in employment tax, this guide provides good insight into the key areas of exposure related to fringe benefit reporting.

Higher Education Industry Receives Letters from Senators Baucus and Grassley

Senators Max Baucus and Chuck Grassley of the Senate Finance Committee have recently sent letters to 136 colleges with endowments of $500 million or more asking questions about endowment growth and spending on student aid. The letters are in response to a recent NACUBO study showing significant college endowment growth.

The questions ask for various information covering the last ten years activity, including number of students, cost of tuition, financial aid, donations to the endowment, investment management fees, and the growth of the endowment. The questions also center on endowment payout policies and the financial aid process.

IRS Comments on Exempt Org Focus in Upcoming Year

At a January 18 meeting of the American Bar Association Section of Taxation, the IRS commented on several areas of focus for the upcoming year. According to the BNA report of the meeting:

Judith Kindell, IRS senior technical advisor to the director, exempt organizations was indicated that the ongoing scrutiny of hospitals is expected to continue. Nothing the recent comprehensive study of the issue, there is a lot of variation in what hospitals are reporting for community benefits. The IRS is analyzing the issues and demographics and expects to issue a report at a later date.

The IRS will also be looking into both public and private colleges and universities, including income, expenses, and losses reported on Forms 990 and 990-T. The IRS continues to work on the compliance check questionnaire, which will include areas of Congressional and IRS interest, such as endowments and executive compensation. (The compliance check questionnaire was expected to be sent out this month--CAB).

Technical Corrections Act Includes 990-T Public Disclosure Changes

On December 29, President Bush signed the Tax Technical Corrections Act of 2007. Included in the Act are some changes to the Form 990-T public disclosure and inspection requirements.

The Act clarified a provision requiring that section 501(c)(3) organizations make available for public inspection their unrelated business income tax returns, and that the 3-year limitation on public inspection requirements applies to Form 990-T. The provision also clarifies that the IRS is required to make Form 990-T publicly available.