Compliance

In order for the Tax Department to best manage tax risks, it is important for the university community to have a general understanding of some of the risks involved.

There are two main tax risks that exist in a university setting like the University of Michigan:

1. Tax filings – similar to other taxpayers, the university must file information and other returns for the benefit of the general public, in addition to the traditional filings required of for-profit entities.  As a consequence, the university is subject to challenges by the Internal Revenue Service (IRS) with respect to its returns and if the need arises may need to defend positions taken.
2. Loss of exemption – as an exempt entity, the university must take steps to maintain its status. In this context, certain transaction or activities may be prohibited.

Examples of the types of filings prepared include reporting of (1) activities that derive unrelated business income tax (UBIT) on Form 990-T, (2) employment taxes including fringe benefits on Form W-2, 941, and 1042-S, (3) payments to applicable vendors on Form 1099-Misc, and (4) education tuition credits on Form 1098-T.

Examples of the types of terms commonly used when discussing how to avoid losing tax-exempt status include (1) private benefit or inurement, (2) intermediate sanctions, (3) rebuttable presumption, (4) legislative activities, (5) political activities, and (6) partnership activities.

Managing tax risks

Many different steps are performed by the Tax Department at the University of Michigan to manage tax compliance, which include (1) communicating tax risks and the need for compliance, (2) holding roundtable meetings with interested parties to identify and resolve current issues, (3) developing close working relationship with high volume tax areas, (4) setting policies and procedures to standarize a university-wide approach.

Please see the Policies and Procedures web page to familiarize yourself with the standards already in place to address tax risks.

If you have a concern regarding tax risks or one of the university's tax filings please contact the Tax Department at taxreporting@umich.edu.

Tax Alerts

Tax Tickets – As part of the audit process, our office reviews certain expense reimbursement requests submitted through Concur to determine whether taxation is triggered. If so, the schools, colleges and units (SCU) must submit the reimbursement through the Payroll office to include as taxable income in the employee’s wages. Please know that the SCU may gross-up the reimbursed amounts to cover the employee's taxes. After reviewing the tax tickets over the past year, below are helpful reminders.

• Lateness - SPG 507.10-1 on Travel and Business Hosting Expense Policy "requires employees who incur travel expenses to submit them via the university’s travel and expense system substantiating the amount, date, and business purpose of expenses, ideally within 10 days but no later than 45 days, of the completion of the trip or date of hosted event. Expenses submitted in excess of 45 calendar days will be reviewed by the Tax department to determine whether they are reimbursable."  If not, they must be submitted to the Payroll Department to include in the employee's wages. 
• Apparel – The reimbursement of clothing that an employee is required to wear when performing one’s duties may trigger taxable income when the clothing is suitable for general wear or use away from work. Please contact our office if you have questions.  This issue has been included in recent employment tax audits conducted by the Internal Revenue Service (IRS).

Employee Retention Credits (ERC) – The ERC is a federal subsidy for employers that had to continue to pay wages for their employees who were sent home and not able to work due to the pandemic. This credit was most helpful to businesses during the 2nd and 3rd quarter of 2020. SCUs are receiving notices from firms that appear as refund statements from the IRS, reminding businesses that they should file for the ERC if they have not done so. Please send these notices to our office.

• U-M as a government entity was not entitled to benefit from this credit until calendar year end (CYE) 2021. Based on our discussion with an outside counsel, it was determined that the opportunity had passed by, i.e., U-M had repurposed its idle employees to effective employment positions by CYE 2021.

• The IRS has issued multiple warnings regarding fraud alerts from overaggressive firms who are filing these claims.