IRS Audit Am I in Trouble? 08 Treasury Symposium Savannah, GA Tuesday, February 5 Concurrent Session 19

Transcription

1 IRS Audit Am I in Trouble? 08 Treasury Symposium Savannah, GA Tuesday, February 5 Concurrent Session 19 1

2 Presenters Jim Pierce Director, Treasury Services Georgia Institute of Technology Amy Dosik Tax Services Ernst & Young, US, LLP Atlanta, Georgia Kathy Pitts Tax Services Ernst & Young, US, LLP Birmingham, Alabama Any U.S. tax advice contained in the body of this presentation was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. 2

3 Agenda What Prompted this Topic? Why worry -- we re tax exempt! Advance Preparation for an Audit Facilitation of an Audit Other Tax Issues to Consider 3

4 Tax Quote I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half the money. Arthur Godfrey, entertainer 4

5 What Prompted this Topic? Why worry -- we re Tax Exempt! 5

6 What prompted this topic? Two Stubborn Issues Arose: Payments to human subjects Personal use of cell phones 6

7 Payments to Human Subjects: Concerns Payments to employees Payments to non-us citizens Filing 1099s HIPAA compliance 7

8 Payments to Human Subjects: Options Considered Gift Cards: Prohibited by GIT Financial Policy. Setting de minimis levels for reporting: IRS doesn t officially condone. Multiple payments from different studies could aggregate to total in excess of de minimis threshold. Completing tracking sheets to route through payroll for compliance reviews: Slow, inaccurate Could hinder research pools HIPAA violation? 8

9 Payments for Campus Cell Phones Concerns Current IRS focus on employer-provided d cell phones/wireless devices: Performing reviews as part of larger scope audits. Classifying value of devices and reimbursement of personal use as non-cash compensation. Current GIT practice/policy might not properly address IRS concerns. Use of different types of devices on campus. 9

10 Payments for Campus Cell Phones: Options Considered Require personal ownership of all communications devices. Exception: single function pagers. No longer pay monthly service costs. Stipend has tax implications on individual employees. Establish device purchase limits eligible for reimbursement Three tiered, fixed amount (2 way radios/cell phones/web enabled devices). Grounds crews/campus security might not have adequate credit to obtain required devices. Monthly reimbursement or stipend to cover costs. Allow employee to submit 3 consecutive months bills for review for consideration of increasing monthly reimbursement or stipend. 10

11 Parting thoughts on two stubborn issues No easy answers. Several things to consider and many of them may be unique to your own campus. The best thing to do is to recognize the issues, address them as best possible, and be prepared to discuss your positions with tax authorities and other regulators. Be prepared -- keep written documentation of what you did and why. 11

12 Questions? 12

13 Tax Trivia In all, about how many people do you think reported as their Social Security number in 1937? 40,000 10, ,

14 Advance Preparation for an Audit 14

15 Advance Preparation: Lowering the Probability bilit of Adverse Outcomes Regular self-review for areas of exposure: Ensure operations are consistent with exempt purposes. p No prohibited activities (e.g., excessive lobbying or unrelated business activity, political campaign activity). No unreported taxable activity (e.g., income or excise taxes). Reporting and other compliance issues: New IRS Form 990: core form plus 16 schedules Additional questions on governance and other issues. Contemporaneous documentation and record-keeping for all tax positions. 15

16 Advance Preparation (cont.): Finding out About IRS Initiatives IRS Website and EO Newsletter Research and Compliance Initiative for Colleges and Universities: Income and expenses reported on Form 990 Form 990T expense allocations and losses Endowments investments, distribution, uses Executive Compensation 529 Qualified Tuition Programs IRS Education and Outreach: Web-based, Live, Phone Forums, Publications Other IRS-focused groups. Compliance check letters (e.g., post-issuance bond compliance). 16

17 Advance Preparation (cont.): IRS Hot Topics for Higher Ed Exemption Issues: Private Inurement and Private Benefit Political Activity it Unrelated Business Income Tax-Exempt Bond Compliance Athletic Programs Payroll Issues 17

18 Questions? 18

19 Facilitation of an Audit 19

20 Approaching an IRS Audit Be able to demonstrate that you: Are organized & operated for your stated t exempt purpose, Have filed complete and accurate tax forms, and Have paid all applicable taxes. Selection of audit targets: Tax returns, complaints/tips, mass media stories, organization s website, focus areas. Ask Why were we chosen? 20

21 Facilitation of an Audit Designate a point person at your organization. Establish rapport with auditors. Understand the process up front ask for the audit plan. Limit excessive requests and fishing expeditions. Discuss draft IDRs. Keep a log of IDRs and responses. 21

22 Facilitation of an Audit (cont.) Understand your rights be careful what you agree to (e.g., extending statute of limitations). Fess up and correct early in the process. Discuss issues before auditors submit written findings. Consider professional assistance: Helps to set ground rules and move the process along. Valuable experience and IRS insight. 22

23 Questions? 23

24 Other Tax Issues to Consider 24

25 Other Tax Issues to Consider Private Inurement and Private Benefit Executive Compensation Phase III Compensation from related orgs. Loans to executives Country club dues and other perqs. FIN 48 Unrelated Business Income Tax Exempt Bonds Private Use & Arbitrage Rebate Prohibited Tax Shelter Transactions 25

26 Other Tax Issues to Consider (cont.) Political Activity Alternative ti Investments: t Foreign reporting and tax exposure Tax shelter reporting exposure Unrelated business income tax exposure Joint Ventures Revised Form 990 Non-cash Contributions Supporting Organizations Sponsorship vs. Advertising Payroll Issues 26

27 Questions? 27

28 One More Trivia Question What do Americans Fear Most? Death Standardized Tests IRS/Taxes Flying Public Speaking 28