Before explaining why conservative groups seem to have been targeted by the IRS, an agency official explained to congressmen why colleges and universities got a pass on taxes that they did owe.
“On April 25, 2013, the IRS released the final report of its Colleges and Universities Compliance Project. Based on responses to a questionnaire distributed to over 400 tax-exempt colleges and universities, the IRS audited a sample of 34 colleges and universities identified as at risk for noncompliance,” the U. S. House Ways and Means Committee revealed on May 1, 2013. “The report focused on compliance rates among colleges and universities in the following areas: (1) unrelated business income tax (UBIT), (2) executive compensation, and (3) employment tax issues.”
“During its four-year investigation, the IRS found significant noncompliance and underreporting of UBIT by over 90 percent of the audited schools, with income adjustments of about $90 million, and loss disallowances of over $170 million. The primary increases to UBIT were: disallowed expenses that were not connected to unrelated business activities, errors in computation or substantiation of losses, and the misclassification of unrelated activities as exempt.”
“The examinations of college and universities identified some issues with respect to UBI,” Lois Lerner of the IRS told the House Ways and Means Committee Subcommittee on Oversight  on May 8, 2013. “As a result, the IRS plans to look at UBI reporting more broadly.”
“In addition, IRS plans to ensure that tax-exempt organizations are aware of the importance of using appropriate comparability data when setting compensation.” Colleges and universities make a lot of money off of such enterprises. “Thousands of commercial programs are being run by state and private non-profit universities, engaging in unfair competition with for-profit companies, including small businesses,” John Palatiello , president of the Business Coalition for Fair Competition , pointed out in an article for Accuracy in Academia.
“The programs offer little education for students or research for science. Rather, tuition, endowments, or state and Federal funds are used to operate business units inside institutions of higher learning.” BCFC is a coalition of firms, organizations and individuals fighting unfair government-sponsored competition with private enterprise.
Nevertheless, the approach by Lerner and the agency to well-heeled college administrators could probably be described as collegial. It stands in marked contrast to that of Lerner and the IRS during the Obama years in its reaction to right-of-center groups.
At the agency’s Cincinnati office, “Instead of referring to the cases as advocacy cases, they actually used case names on this list,” Lerner told the American Bar Association  on May 10. “They used names like Tea Party or Patriots and they selected cases simply because the applications had those names in the title. That was wrong, that was absolutely incorrect, insensitive, and inappropriate — that’s not how we go about selecting cases for further review. We don’t select for review because they have a particular name.”
“The other thing that happened was they also, in some cases, cases sat around for a while. They also sent some letters out that were far too broad, asking questions of these organizations that weren’t really necessary for the type of application. In some cases you probably read that they asked for contributor names. That’s not appropriate, not usual, there are some very limited times when we might need that but in most of these cases where they were asked they didn’t do it correctly and they didn’t do it with a higher level of review. As I said, some of them sat around for too long.”
Lerner denies that, under the Obama Administration during an election cycle, political considerations played a role in the audits. “They didn’t do this because of any political bias,” Lerner insists. “They did it because they were working together.”
“This was a streamlined way for them to refer to the cases. They didn’t have the appropriate level of sensitivity about how this might appear to others and it was just wrong.”
Spencer Irvine is a staff writer at Accuracy in Academia.
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