The IRS Takes a Closer Look at Colleges

Harvard University owns a hotel that overlooks the Charles River and charges up to $300 a night for a room. The country’s richest higher-ed institution doesn’t pay a cent in taxes on revenue from the high-rise in Boston, Mass., and hasn’t for at least five years. Now, the Federal government wants to know: Are taxpayers getting shorted?

Not-for-profit universities are exempt from paying taxes on tuition or other money that relates directly to their educational mission. But the government has long required them to pay up on a class of revenue known as “unrelated business income.” That’s a broad category, encompassing college-owned bookstores, restaurants, sports arenas, and other venues that sell goods and services to the public. Although the regulation has been in place since 1950, the IRS has stepped up enforcement only recently. According to public tax filings and IRS correspondence obtained by Bloomberg News, more than 30 universities are coming under increased scrutiny. The IRS declined to disclose a complete list of the schools under review, but Notre Dame, Purdue, the University of Texas at Austin, Texas A&M, the University of North Carolina, the University of Georgia, Lamar University, the University of Central Florida, Yeshiva University, Suffolk University, and Harvard confirmed the IRS is eyeing them. The government is looking into whether schools improperly claimed tax-exempt status for taxable businesses.