The University Record, March 26, 1996

U-M, IRS reach settlement

The University and the Internal Revenue Service (IRS) have reached a court settlement over disputed back taxes, with the University paying only a small fraction of the original multi-million dollar assessment.

In December 1994, after several months of discussions with University officials, the IRS originally assessed the University $7.7 million in additional taxes covering a three-year period. But as a result of the settlement reached last week, the U-M will pay only $124,366 in additional taxes.

"I am pleased that the University and the IRS have reached this agreement. We were confident of the correctness of our position, and the settlement reflects this fact," said Farris W. Womack, U- M's executive vice president and chief financial officer. "I also want to express my appreciation to the IRS for their good-faith efforts to work with the U-M to resolve this matter."

The IRS claimed the University had improperly deducted expenses and underreported income on several auxiliary activities, including the University's two golf courses, theatrical and musical events, and some computing facilities.

The University challenged the original IRS tax assessment for additional taxes for the fiscal years ending June 30, 1989, 1990, and 1991. The University filed a petition with the U.S. Tax Court in March 1995, disagreeing with the IRS's claim that nearly all of the expenses claimed in the University's tax returns for the three fiscal years were disallowable. As a result of the review and appeals process, only one of the items in the IRS Letter of Deficiency to the University was upheld by the IRS appeals office one year of expenses deducted for taxable income on scoreboard advertising.

Under the terms of the settlement, the U-M will be assessed additional amounts of $5,100 for 1989, no additional amounts for 1990, and $119,266 for 1991. The University will pay no penalties to the IRS.

In a related action, the IRS recently issued a "No Change" letter for the University's tax return filed for unrelated in come for the fiscal year June 30, 1992. A "No Change" constitutes an acceptance of the tax return as filed with no adjustments to the amount of taxes paid.