The IRS has issued its final report on the College and Universities Compliance Project, which is based on questionnaires sent in 2008 to a sample of 400 colleges and universities.  Regarding compensation, the report shows a significant portion of the surveyed institutions failed to obtain the advantage of establishing a “rebuttable presumption of reasonableness” of compensation.  Although almost all institutions followed the requisite procedures, about 20% used incorrect data for comparing their compensation to that of other organizations.  This was due to one or more of (a) using compensation surveys that did not show that the surveyed entities were similar to the institution in question, (b) including dissimilar institutions in the surveys relied on, and (c) insufficient data in the surveys about whether the compensation surveyed was total compensation, not just salary.  (It appears that the wide range of benefits offered makes it difficult for colleges and universities to identify all elements of compensation.)

Although intermediate sanctions (financial penalties) were not imposed by the IRS on any of the institutions examined, the effort nevertheless resulted in finding $36Mm of additional wages and in turn $7Mm in taxes and penalties.  The survey showed only about 21% of the surveyed colleges and universities used outside compensation consultants, which we feel may account for many of the defects found in the processes used.

The IRS announcement is here and the full report is here.