Did you know that the University of Michigan files more forms with the IRS than General Motors? Tax compliance is not easy for them either, but at colleges and universities we tend to shoot ourselves in the foot when it comes to tax compliance.
Here are thirteen items that I see colleges and universities doing to make tax compliance as hard as possible at their school.
- Disburse it
Lets take the responsibilities for tax compliance and disburse it though-out various departments. So, we’ll have Accounts Payable prepare the 1099 Forms, Payroll prepare the W-2’s, Student Financials to prepare the 1042-S forms, HR to prepare retirement reporting forms. But this is the way it has to be done, right? They are the people and the departments with the information and the people to do these forms. The real problem with this is the next item.
- Don’t assign oversight of tax compliance to any one person.
Many smaller schools do not have a positon of Tax Manager for various reasons such as budget or a false sense of having a high degree of compliance at the university and even a feeling of, ‘We’ve never been audited so why should we bother with a Tax Manager. Only the first of these reasons are valid. I can understand not having the budget for a new position (maybe).
But to not designate one person with the authority and responsibility for tax matters is a way to make tax compliance hard at your school.
- Don’t review your written policies annually
Keep them up to date by assigning an office, such as the Controllers Office to review and date annually. I have seen policies that were dated as much as eight years ago.
- Do have more than one point of contact with the IRS.
How many people talk with the IRS at your school? Does someone in Payroll talk to the IRS if a Notice about employment taxes arrives? Does someone from Accounts Payable talk with the IRS if a penalty notice from the IRS arrives about the 1099’s? Does someone else talk with the IRS about a penalty notice from the IRS for the Form 1042S?
The point is, only one person should represent the university with the IRS. You will receive different information from many different people if there are many people speaking on behalf of the university to the IRS
- Don’t train the people who do tax compliance
Most often, the people responsible for tax reporting and compliance with IRS law, do not receive training though-out the year. Tax law is changing at a more rapid pace than ever before. The personnel responsible for tax in the areas mentioned above may view the task of reporting and filing forms as a ‘once a year’ duty, however, the tax law may have changed from last year – a new ‘box’ may have suddenly appeared on a form and now they discover they have not collected the information to complete that ‘box’ of information. If you do provide some training, ask yourself if a one hour webinar is sufficient to cover all the tax law impacting colleges and universities.
Don’t provide them with resources – books, subscriptions to tax research services of the free subscription to the Tax Update for Colleges and Universities Newsletter
- Get your info from the Internet or a Tax ListServ
Oftentimes, this information is outdated if on the Internet. The Tax ListServ is filled with opinions or how a tax situation is handled at that school – and neither may be correct.
- Do have more than one address to receive mail from the IRS – and that address should contain the title, not an individuals name. i.e., ABC University, ATTN: Office of the Vice President, 123 Main St…..
True Story: Mail was received from the IRS addressed to an individual who had retired two years before. No one knew what to do with the mail and didn’t even open the IRS letter. This resulted in
- Don’t have the 15 tax related policies I recommend
Just send me an email and I’ll send them to you for your review.
- For Controllers and VP’s: Don’t invite your tax people to meetings
They will see and hear items that have a tax consequence.
- Don’t review Independent Contractor Agreements
While your school may have a twenty factor test to determine if someone should be an independent contractor or an employee, we often make this decision without looking at the actual agreement between the individual and the institution. You’ll find that many departments really want to make someone an independent contractor as it ‘is just too much paperwork and trouble’ to have them go through getting them on payroll.
- Don’t let the tax department review contracts, agreements or settlements.
Help reduce the ‘siloing’ of information so that tax compliance can be achieved.
- Let the Department with the loudest voice overrule the tax department.
Base your tax decisions on data and facts. It’s not the loudest voice in the room or the person with the highest title who can put your institution at risk.
- Don’t support the tax manager in their decisions
You can’t make everyone happy. When the tax manager is correct, do not appease others on campus and chance an audit
For more information, contact me at Steve@TheTaxTranslator.com