Tax Issues of Educational Organizations (Portfolio 482)

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Table of Contents

Detailed Analysis

I. Introduction; General Principles

A. Scope of Portfolio

B. Formation and Exempt Status

C. Factors Determining Tax-Exempt Status

D. Private Inurement

E. Effect of Public Policy

F. Other Sources About Exempt Status

1. Nontraditional “Educational Organizations”

a. Examples of Organizations That Qualify

b. Commercial Overtones Can Prevent Qualification

2. A Wholly Owned Government Instrumentality

G. Other Public Policy Issues

1. The GLASS Ruling

2. Public Policy on Religious Activity

H. Obtaining Recognition of Exemption

1. Filing Form 1023

2. Churches and Church-Related Educational Organizations

II. Racial Discrimination

A. Guidelines

B. Court Decisions

C. Church-Related Schools

D. Nondiscriminatory Policy for Private Schools

1. Scholarships

2. Publication Required

3. Publicity Not Required

4. Recordkeeping

E. Nondiscriminatory Policy for Public Schools

F. Affirmative Action

G. Current Status

III. Sexual and Gender-Based Discrimination

A. Sexual Orientation

B. Gender-Based Discrimination

1. State Action Doctrine

2. Level of Scrutiny

3. Position of the IRS

4. Conclusion

IV. Unrelated Business Income Tax - 511, 512, and 513

A. Scope of Discussion

B. Applicability to Educational Organizations

C. What Is Taxable?

1. Unrelated Business Taxable Income Generally

2. Trade or Business

3. Regularly Carried On

4. Substantially Unrelated to Tax-Exempt Purposes

D. Sections 512 and 513 Exclusions

E. Examples

1. College or University Bookstores

2. Affinity Credit Cards

3. Travel Tours

4. Parking Lots

5. Ski Facilities

6. Campus Golf Courses

7. Electrical Power Production

8. Sports Camps and Clinics

9. Exclusive Marketing Arrangements

10. Corporate Sponsorships

a. Before the enactment of 513(i)

b. Section 513(i)

c. Final Regulations

11. Advertising Income

a. Generally

b. Student Newspaper Advertising

c. Yearbook Advertising

12. Hotel and Restaurant Operations, Entertainment Activities

13. Partnerships

14. Concession Sales

15. School Handicraft Shops

16. School Facilities

17. Broadcasting Rights

F. Avoiding or Minimizing UBIT

G. Public Inspection of Form 990-T

V. Audit Guidelines

VI. Tax Incentives for Education

A. Tax Treatment of Scholarships

1. In General

2. Scholarship/Fellowship Grant

3. Qualified Scholarship

4. Qualified Tuition and Related Expenses

5. Tax Consequences for Scholarship Amounts Includible in Gross Income

6. Candidate for a Degree

7. Educational Organization

8. Recordkeeping

B. The Taxpayer Relief Act of 1997 and Subsequent Legislation

1. The Hope Scholarship Credit

2. The Lifetime Learning Credit

3. Information Reporting for Education Tax Credits

a. Who Must File

b. Information Required

c. When to File

d. Manner of Filing

e. Statements To Be Provided to Students

f. Collecting Information

g. Penalties

4. Coverdell Education Savings Accounts

5. Qualified Tuition Programs ( 529 plans)

6. Interest on Education Loans

7. Deduction for Tuition and Related Expenses

C. Qualified Tuition Reduction

1. Generally

2. Domestic Partners Other Than Spouses

3. Examples of Tuition Reduction Program

a. State Employees

b. State College and University Employees

c. Terms and Conditions

d. Retirees

e. Education Tuition Reduction for Children of State Employees

4. Exclusion of Employer-Provided Educational Expenses

5. Nondiscrimination Among Employees

a. Generally

b. Two-Part Test

(1) Reasonableness

(2) Objective Criteria

6. Special Rules for Teaching Assistants and Research Assistants

D. Compensation for Services

1. Services as a Condition for Funds

2. Primarily for Grantor's Benefit

3. Exceptions

E. Withholding and Reporting Requirements

1. U.S. Citizens and Residents

a. Information Returns and Payroll Taxes

b. Allocation for Compensation for Services

c. Responsibility for Determining Qualification of Grant Use

2. Nonresident Aliens

F. Treatment of Royalty Payments to Faculty/Inventor by a College or University Employer

G. Tax Issues Relating to Tenured Faculty and Early Retirement Plans

H. Student Exception to FICA Taxes

1. Generally

2. Final Regulations

a. School, College, or University

b. Enrolled and Regularly Attending Classes

c. Student Status

d. Full-Time Employee and Hours Worked

e. Professional Employee

f. Licensure

g. Employment Benefits

h. Safe Harbor

I. Nonresident Alien Withholding Changes

VII. Fringe Benefits

A. Introduction

B. Various Benefits Applicable to Educational Organizations

1. Free or Subsidized Housing

a. Exclusion

b. Convenience of the Employer and Condition of Employment

c. On Employer's Business Premises

2. Alternative Exclusion Available Under 119(d)

3. No-Additional-Cost Services: 132(b)(1)

a. Definition

b. Applicability to Educational Organizations

c. Line of Business Requirement

4. Nonapplicability of 132

C. Educational Assistance Programs

1. Generally

2. Requirements

VIII. Charitable Contributions

A. Introduction

1. Section 170 in General

2. Limitation of Discussion

3. Requirements for Donor Deductibility

a. Qualified Donee

b. Section 170(c)(2) Organizations

(1) Inurement

(2) Political Activities

(3) Political Campaigns

(4) Racial Discrimination by Private and/or Church-Related Schools

c. Requirement of Gift - What Is a Contribution?

4. Tuition Payments as Contributions

5. Requirements for Nonprofits to Follow Other Statutes

6. Right to Purchase Seating at College or University Athletic Event

7. Contributions to a College or University for Reconstructing and Remodeling Fraternity Housing

8. Contributions Benefiting the Donor

9. To or For the Use Of

B. Contributions of Property

1. Generally

2. Deductions for Ordinary Income Property

3. Deductions for Tangible Personal Property

4. Deductions for Inventory Contributions

5. Bargain Sales

6. Charitable Contributions of Computers by C Corporations to Schools - 170(e)(6)

7. Charitable Contribution Deduction Limitations for Individuals

8. Required Acknowledgment and Appraisal of Contributions Received

a. Cash Contributions Generally

b. Cash Contributions of $250 or More

c. Noncash Contributions

(1) Noncash Contributions Valued at Less Than $250

(2) Noncash Contributions Valued from $250 but Not More Than $500

(3) Noncash Contributions Valued in Excess of $500 but Not More Than $5,000

(4) Noncash Contributions Valued in Excess of $5,000

9. Expenses Paid for Student Living in Taxpayer's Household

10. Audit Guidelines Relative to Contributions Received

IX. Employment Tax Obligations

X. Retirement Plans

XI. Tax-Exempt Bonds

XII. Intermediate Sanctions

A. History

B. Excess Benefits

1. Definition

2. Excessive vs. Reasonable Compensation

3. Other Exchange Transactions

4. Special Rules and Exemptions

a. Certain Nontaxable Benefits

b. De Minimis Fringes

c. Reimbursement of Expenses

5. Indication of Intention to Treat as Compensation

6. Revenue Sharing

C. Disqualified Persons

1. Definition

2. Five-Year Lookback

D. Organization Managers and Officers

E. Presumption of Reasonableness of Compensation and Valuation of Property

1. General

2. Burden and Overcoming Presumption

F. Penalties; Excise Taxes (Sanctions)

1. In General

2. First-Tier Taxes

a. Tax on Disqualified Persons

b. Tax on Organization Managers

3. Second-Tier Taxes

a. 200% Excise Tax

b. Correcting a Transaction

4. Abatement

a. First-Tier Taxes

b. Second-Tier Taxes

XIII. Electronic Filing

XIV. Public Inspection of Exemption Applications and Annual Returns

A. Annual Return

B. Exemption Application

C. Time, Place, and Manner Restrictions

D. Furnishing Copies

E. Penalties

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Examination Guidelines for Educational Organizations

Worksheet 2 IRS Continuing Professional Education (CPE) Technical Instruction Program

Worksheet 3 Internal Revenue Manual 4.76.8, Private and Charter Schools

Worksheet 4 Internal Revenue Manual to, Religious, Charitable, Educational, Etc.: Schools

Worksheet 5 IRS Memorandum on Exclusive Provider Arrangements and UBIT





Committee Reports/Public Laws:

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