The document discusses establishing a tax compliance program for independent schools. It recommends six basic steps: 1) Awareness of tax issues and responsibilities, 2) Developing a tax team approach, 3) Assessing tax risks, 4) Reviewing IRS communications, 5) Creating policies and procedures, and 6) Maintaining documentation. The first step is awareness, which involves determining tax management roles, developing quarterly tax update meetings, and assessing the strongest and weakest tax compliance risks. Establishing a solid tax compliance program helps schools avoid IRS scrutiny and penalties that could damage finances and reputations.

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CHAPTER 12
TAXATION AND REPORTING
EVERYTHING A BUSINESS OFFICER ALWAYS WANTED TO KNOW ABOUT TAXES
IN THIS CHAPTER:
 Establishing a Tax Compliance Program
 The Tax Calendar
 The Different Types of Taxes
 A Closer Look at UBIT
Contributor: Steve Hoffman (Suggest using something like this: Steve Hoffman, The Tax
Translator – o Steve Hoffman, Tax Advisor for NBOA Members)
GETTING A HOLD ON THE PROCESS
The Internal Revenue Service (IRS) is an independent school’s largest vendor. The amount of
funds flowing out of a school for tax obligations can equal 15 percent of the total budget. This
includes all taxes paid: withheld federal, state and local taxes, taxes withheld and paid for
international students, sales tax, excise taxes and unrelated business income tax (UBIT).
Even with all those tax liabilities, many independent schools have never had difficulties with the
IRS. They may have never received a notice assessing a penalty or advising them of an audit.
The fact is, however, that all schools need to resist complacency and implement a solid tax
compliance program. Schools that fail to adopt this approach risk IRS scrutiny—as well as
damage to their finances and reputations.
ESTABLISHING A TAX COMPLIANCE PROGRAM
The chart below shows the six basic steps that will lead a school toward tax compliance:

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( Can we add something like this? Copyright, Steve Hoffman, The Tax Translator,2013?) All steps to the
top of the pyramid are designed to ensure that independent schools are complying with
federal, state and local tax requirements and to help them establish an audit defense if needed.
Before exploring these six steps, however, business officers should first look at where their
schools stand on the following scale in terms of tax compliance:
Same as above – Copyright Steve Hoffman, The Tax Translator, 2013
The Random Phase represents a business officer who, as chief financial officer, has little or no
knowledge about tax law compliance. He or she may not know who prepares tax returns or
makes the tax deposits. The school may also lack tax policies and procedures. Business officers
in the Random Phase may “feel” that their school is in compliance with federal, state and local
tax laws, but have no way to prove it.
In the Emergent Phase, the school has someone who acts as tax manager, most often the
controller or assistant business officer for whom this falls into the category of “or other duties
as assigned.” In those cases, the CFO should meet with that individual to assess his or her
awareness of tax issues and tax law changes that affect the institution, as well as the controls
the acting tax manager has put in place to see that there are no late deposits or missed filings.
Audit
Defense
Audit
Defense

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Schools at the right end of the scale are in the Excelling Phase. Their business officers are aware
of tax issues, know how to address them and have the information they need to defend the
school against penalties or audits. This elevated state is where thought leaders in business and
finance operational efficiency dwell.
STEP ONE: AWARENESS
Business officers, whether experienced or new to the job, will find the following five tasks
essential to achieving awareness of tax compliance issues.
Task 1: Look at Management
Business officers need to determine who manages their school’s tax compliance program, as
well as who else is knowledgeable about tax issues that affect the school and who manages and
prepares tax returns and reports.
At a smaller school without a designated tax person, tax compliance may be disbursed
throughout the organization. For instance, payroll staff may deposit employment taxes as well
as sign and file employment tax returns. Accounts payable may be in charge of 1099 forms for
independent contractors. At a larger school, the business officer should meet with the
designated tax manager to ask what he or she sees as the biggest tax risks to the school, and
together create a visual matrix of those risks. This can be as simple as the image below.
Can we add the Copyright for this graphic also? This type of presentation will reveal areas that
need improvement—in this case, sales tax and UBIT. The business officer’s next move is to ask
the person responsible for the tax management function what he or she sees as the first steps
to take and what obstacles exist. Then the business officer, as CFO, moves to remove those
obstacles. In some cases, the business officer might have to be persistent to gain the
cooperation of the various functions.
Task 2: Develop a Team Approach
0
20
40
60
80
100
NRA Employment I/C -Employee UBIT Sales
Tax Risks

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Business officers should consider starting quarterly tax update meetings involving the functions
that deal with tax issues, including accounting, human resources and financial aid. Using their
input, the business officer can develop a yearly tax calendar that lists all known tax filings, who
is responsible for those filings and the due dates for all returns and deposits (see sidebar). The
tax team should review this calendar at each quarterly meeting to ensure that no filings or
deposits are missed.
DESIGN: TAX CALENDAR NEAR HERE I Agree – Tax Calendar here!!
Business officers should not be surprised if their colleagues resist this level of oversight. To
prevent pushback, prepare for the question, “What’s in it for me?” For academic departments,
the benefit could be that the money saved on penalties and interest can now go to programs.
Administrators would benefit from spending less time on IRS inquiries.
The financial costs of an exam by the IRS can be harsh, especially when considering potential
penalties and interest. The IRS can audit for three years prior plus the current year, which, in
reality means that a $1 million per year IRS assessment can cost up to $4 million on one issue
alone. In addition, a school’s reputation can be damaged from an IRS examination becoming
public knowledge. Such news has an impact on donors, enrollment and jobs.
Task 3: Assess Risk
Most independent schools perform a campus-wide risk assessment, yet these studies tend not
to include tax risk or input of the designated tax manager. Given the potential for financial and
reputational hits, any risk assessment should include the school’s strongest and weakest tax
compliance risks. For instance, it might rate areas such as payroll tax, reporting, UBIT and
independent contractors as high, medium or low risks. Here are suggested tax risks for
consideration and review, along with the responsible offices and steps needed to reduce the
tax exposure. The grid lines did not print out when I printed that – suggest they be present in
the book as they make it easier to read.
Issue Office Mitigation
(Policies)
Tax-exempt bond compliance General counsel
Treasurer
Guidelines on debt
Tuition/ educational
assistance program
Human resources
Benefits administration
Employee handbook
Policy—taxation of employee
tuition benefits
Prizes and awards to
employees
Accounts payable Policy—taxation gifts, prizes
and awards to employees

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Payroll services
Business office
Record retention for tax
records
Business office Policy—records management
Employee versus independent
contractor
Business office
Procurement
Accounts payable
Policy—worker classification
Federal, state payroll tax
withholding and reporting
Payroll services
Business office
Policy
Tax calendar
W-2 and W-3 reporting Business office
Payroll services
Information systems
Tax calendar
Nonresident alien (NRA)
taxes, withholding
NRA reporting
Business office
Payroll services
International students
Procurement
Policy
Tax calendar
W-9 collection Accounts payable Policy supplier registration
1099 reporting Accounts payable Tax calendar
Taxability of fellowships and
other forms of financial aid
Business office
Student financial assistance
Accounts payable
Policy—taxable and
nontaxable payments to
students
Imputed interest on employee
loans
Payroll services Policy—employee loan policy
Taxability of meals and
lodging furnished to an
employee
Business office
Payroll services
Accounts payable
Procurement
Policy
Accountable plan—business
expense reimbursement
Accounts payable
Business office
Payroll services
Policy--travel and
entertainment
Procurement card
Allowable automobile mileage
rates
Accounts payable Policy—travel and
entertainment

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Personal use of school owned
automobiles
Payroll services Employment taxes and fringe
benefits
Unrelated business income
tax
Business office Policy—unrelated business
income tax
Tax calendar
Advertising income Business office Policy—commercial
advertising
Unrelated business income
tax
Sales tax Business office Policy—sales tax collection
Reporting and remittance
Tax calendar
Exempt organization tax
return
Form 990
Business office Policy—I-90 disclosure
procedure
Tax calendar
Charitable contributions Development
Business office
Policy
Gift acceptance
Gift processing
Reporting receipt of cash
greater than $10,000
Cashier’s office
Business office
Policy
Foreign bank account
reporting
Business office Policy
Political activity prohibition Business office Policy
Cell phones, iPads, laptops Business office Policy
Sales tax-exempt purchases Business office
Accounts payable
Expenditure of funds
Who should set the degree of risk for the school? Managers will say it’s their responsibility, but
the issue is one the school’s board of trustees should consider. The worst time to let the board
know of a potential tax risk is when the IRS is coming.
Task 4: Review IRS Communications
If someone at the school other than the business officer acts as a tax manager, he or she should
be directed to show the business officer every piece of correspondence from any taxing

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authority. In the absence of such a position, the business officer should receive that
correspondence.
It may seem obvious—but whoever is designated to receive tax-related correspondence should
open the envelope or email and get to work on handling the request or recording the
information. Sometimes people fear for their jobs and do not want to bring their mistakes to
the attention of their supervisor, thus letting sensitive response deadlines pass. To prevent
these lapses, give the IRS and other taxing authorities information about the office and
individual to whom any correspondence should be directed. This individual should be the only
point of communication, written or verbal, with the IRS or other taxing authorities. This policy
prevents confusion about who is to take the next step and what that next step should be.
If the school does not have a designated tax manager position, the business officer as CFO or
controller should act as the point person. That person should also communicate tax issues
upward to the head of school and relevant trustees such as the board and finance chair. The
school may want to seek outside legal or consulting help if the tax issue is serious—that is, if it
involves an audit or has potential for large penalties.
Schools should centralize tax functions to the greatest extent possible. At the very least, the
business officer must be aware of who has the responsibility for making deposits, preparing
returns, filing returns and communicating tax information within the school and with tax
authorities. The business officer also needs to follow up with responsible parties at meetings
throughout the year. When responsibility for taxes is decentralized, as it is at many schools,
accomplishing these tasks might be more difficult. It’s the business officer’s job to see that all
tax obligations are fulfilled, even when the return is not prepared by the business office or
within its span of control.
Task 5: Build a Team
It's not necessary for the business officer alone to have an in-depth knowledge of all these tax
issues. After developing the tax team, the business officer can ask personnel which taxes they
currently file and pay and then follow up with one more question: Are they aware of any other
taxes that the school should be filing and paying? The answers may be surprising. Some staff
members may not know they should make particular tax filings because no one has ever asked
them about them. Or perhaps they were told not to worry about them or they simply were not
aware of the various activities that are subject to taxation.
Once the business officer has accomplished these steps to make everyone aware of tax
compliance issues—and has become the visible tax advocate for the school—it’s time to move
on to Step Two of the pyramid.
STEP TWO: IDENTIFICATION

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The saying “compliance breeds compliance” means that the business officer has educated the
independent school community about the impact of tax issues and continues education
throughout the year. The more compliance improvements the business officer makes, however,
the more compliance issues he or she seems to find. It’s better to identify tax issues first than
to have the IRS find them—and charge penalties and interest for its discoveries.
The tax committee is the first step toward identifying tax issues. An independent school should
include community members who can identify weaknesses in the tax compliance program. The
committee can include representatives from payroll, human resources, accounts payable and
financial aid, among other functions.
Tax compliance is a concern for the entire school; it’s not just a business and finance division
thing. Taxes are a shared responsibility that extends to the academic side of the house. For
instance, schools frequently sell books or periodicals with advertising in them, such as
yearbooks and athletic guides. This advertising is subject to UBIT. Or consider the school band,
which might sell CDs of its music without collecting the state sales tax. By including the entire
community, the business officer can find allies in promoting a commitment to tax identification.
The Different Kinds of Tax
Every independent school is subject to several kinds of taxes. They all have different filing
requirements, different due dates and different deposit dates. Not only does the business
officer need to have a list of various kinds of taxes, he or she needs to find out who is
responsible for completing filings, reports and payments for each one. Here are the basic taxes
that schools commonly face.
Employment Tax: Employment tax is withheld from employees’ wages, a function typically
performed by payroll staff. The business officer or designated tax manager must determine
who is responsible for making deposits and check whether any deposits have been missed or
any penalties have been incurred. Returns must be filed quarterly, so it’s important to know
who prepares and who signs those quarterlies. Ask whether the forms have ever been filed late,
whether any penalties have been incurred and whether corrected forms have been filed. In
addition, the school should have a backup plan if the person responsible for handling
employment tax duties is unavailable. At one school, that employee was out on sick leave the
day the deposit was due and no one else knew how to perform that task. The school was liable
for $50,000—the IRS penalty for being one day late.
Unrelated Business Income Tax (UBIT): UBIT is a tax on all revenues a school brings in that are
not substantially related to its mission and purpose of education. It includes activities such as
room rentals, facility rentals, advertising and even cell phone towers. Many activities occur
around campus that may become subject to UBIT. (See sidebar for more information on UBIT
scenarios.)

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Perhaps the best way to identify UBIT at a school is to develop an annual UBIT questionnaire for
all departments and then analyze the responses. Examples of UBIT questionnaires are available
at the author’s website, www.TheTaxTranslator.com. (The link to take the reader directly to a
UBIT Questionnaire is the same as above but with a /ubit after the word com) Another way to
identify UBIT is to determine the location of all the credit card “swipe” machines on campus.
Their presence means something is being sold, and when this is the case there may be potential
for UBIT.
Nonresident Alien Tax (NRA): Nonresident alien or NRA is IRS talk for a school’s foreign
students, faculty and staff. Keep in mind that the school—not the individual—is liable for the
tax, since the school is the withholding agent. Nothing that business officers know and love
about the U.S. tax code applies to a school’s foreign students. For instance, some cannot take
itemized deductions. They can’t use Form 1040 (they use Form 1040-NR). Some can't claim
their dependents, and some require an additional amount to be withheld on top of the already
highest single rate of withholding. Further, all non-educational awards and prizes provided to
foreign students are subject to tax on the first dollar.
Business officers should communicate with the individuals who serve the school’s nonresident
aliens. Chances are these professionals are extremely familiar with immigration procedures but
lacking in tax knowledge. In some schools, the admissions office may keep files for international
students, but tax forms may be payroll’s responsibility—a setup that can result in
miscommunication. The business officer needs to bring these two offices together to identify
and remove any obstacles to tax compliance.
Sales Tax: Some independent school staff might be confused when the business officer cautions
them to be aware of sales tax obligations. “Really? Aren’t we tax exempt? We don't have to
collect sales tax on the items we sell!” might be one reaction, or, “We only sell to students, so
we wouldn’t collect sales tax from them.” Students are not tax-exempt.
Unless an independent school is selling to another tax-exempt organization, it must collect sales
tax from the buyer at the time of sale. Selling to a tax-exempt organization requires a tax
exemption certificate at the time of sale.
Most state and local sales tax codes define taxable items as “tangible personal property.”
Simply put, if an item can be handed across a counter, it most likely is subject to sales tax. Items
within that definition vary widely from jurisdiction to jurisdiction, making a comprehensive list
of taxable items impossible to compile. A good rule is to charge sales tax on any item that, if
purchased at a store, would require sales tax.
To determine where sales tax applies at schools, business officers can look for credit card swipe
machines on campus. Those devices usually signal that the school is selling something that may
be subject to sales tax. Another good way to determine sales tax liability is to walk around
campus and check what is being sold where—perhaps school supplies or a snack bar. If the
school operates in more than one state, it may have to file sales tax in all those states.

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Schools should centralize sales tax responsibilities, assigning themto the business office or the
person designated to handle tax matters. Business officers should make sure that person stays
up to date on sales tax changes, which can change once a year and sometimes even twice a
year, depending upon state voting days and special ballot issues. Some states offer a sales tax
holiday during which sales tax should not be collected on certain items sold.
Schools should also explore obtaining exemptions from paying sales tax in other states by
applying for sales tax exemption certificates. The exemption applies to staff, including academic
staff, when traveling for conferences or training, and to students traveling for school-sponsored
athletic or academic purposes. As the school gathers these exemption certificates, the business
officer or tax manager should notify accounts payable and procurement that sales tax is not
due on purchases made in those states.
Tax-Exempt Financing: Schools that issue tax-exempt bonds face another tax compliance risk.
The IRS can audit bond issuances. In this case, it is necessary to keep records for the life of the
bond, often as long as 30 years.
Schools must also be aware of the tax consequences of UBIT if non-tax-exempt activities occur
in tax-exempt financed buildings on campus. The IRS refers to this as unrelated debt-financed
income. Congress set out to tax, as unrelated business income, the investment income from
property a tax-exempt organization acquires using borrowed funds. In general, this designation
applies only if the property involved is “debt-financed property.” Property can be real, tangible
or intangible. If the property is substantially used to further the exempt organization’s exempt
purposes, then it is not treated as debt-financed property. The IRS has defined “substantially”
as 85 percent. (See Chapter 4 for an in-depth discussion of tax-exempt financing.)
Overseas (International) Tax: An independent school may desire an international presence. For
those schools, it’s important to remember that having nonprofit status in the United States
does not mean the school will be considered a nonprofit entity overseas. However, in some
jurisdictions, a school may apply for tax-exempt status in that country, which is not a problem
with the IRS as long as the school’s activities abroad are consistent with its tax-exempt purpose.
It takes only a single employee to set off significant legal and financial obligations for a school.
Formal registration might be required with an appropriate government ministry. A school may
create what’s known as a “permanent establishment” that can, in some countries, subject all
the revenue earned there to tax in that country.
If a school requires the services of a local national, such as a language instructor, to conduct the
activity, then his or her legal employment may require an employer-identification number. That
number cannot be obtained without formal registration with the local government. As a
general rule, retaining and compensating a local national in a foreign country will very likely
trigger a duty to register for payment of tax and other reporting obligations in that country.

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American employees working overseas need the correct visa to work legally. Sending a faculty
member to work in a foreign country without the proper work authorization can result in his or
her immediate detention or even deportation, potentially leaving students without supervision.
If a school hires foreign nationals in their country, the school may become subject to that
country’s sometimes-generous health, retirement and social welfare plans. Sometimes these
other costs can add up to 50 percent of salary.
In addition, even U.S. citizens who work overseas may be eligible for certain foreign labor union
benefits. It’s also not automatic that a school can deposit the paycheck of a U.S. citizen working
overseas into a U.S. bank account. After 183 days, the employee is deemed a tax resident of
that country and the school must deduct and pay to the foreign authorities the appropriate
amounts for income tax and other required payroll-related items.
Independent Contractors: Independent contractors are a part of every audit the IRS conducts.
Who at the school decides whether to pay someone as an independent contractor or an
employee? That person needs training on how to make the correct decision and avoid costly
classification mistakes. The IRS has issued broad general guidelines over the years for
determining independent contractor status. One IRS definition says:
“…generally, the relationship of employer and employee exists when the person for
whom services are performed has the right to control and direct the individual who
performs the services, not only as to the result to be accomplished by the work, but also
as to the details and means by which that result is accomplished.” (Section 31.3121(d)-
1(c) (2) of Internal Revenue Code.)
The IRS also has created Form SS-8: Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, which covers financial controls, behavioral
controls and the relationship of the parties (see http://www.irs.gov/pub/irs-pdf/fss8.pdf). Even
within this publication (the SS-8 is a Form with instructions, not a publication if that is an
issue?), the IRS states that no one area may indicate whether or not the individual is an
independent contractor or an employee. (See Chapter 10 more information on independent
contractors.) Can I ask who wrote a Chapter on Independent Contractors? And may I review it?
Employment Tax and Fringe Benefits: In most cases, school payroll offices do a good job of
handling run-of-the-mill federal, state and local tax withholding, thanks to excellent payroll
software now available. However, in prior years, significant changes to federal withholding and
Social Security taxes have come and gone according to the whim of Congress. For instance, in
2011 and 2012 the government reduced by 2 percent the amount of Social Security tax to be
withheld from employees’ wages. In 2013, it increased by 0.09 percent withholding on
employees earning more than $200,000 a year. These changes, if not implemented correctly,
can result in significant cost in penalties and interest.
Fringe benefits may be taxable or nontaxable. While most heads of school and department
heads would like those benefits to be nontaxable, it’s wise to consult the IRS’ annual guide on

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taxable and nontaxable fringe benefits. The IRS defines fringe benefits as any property or
service (or cash under certain circumstances) provided to an employee in addition to or in lieu
of regular wages, and it states that those items would be a taxable fringe benefit to the
employee unless specifically excluded by statute. For instance, the IRS considers gift cards the
equivalent of cash. Providing gift cards to an employee creates a tax liability for the school
because the value is not reflected on the employee’s W-2.
Employers must report taxable fringe benefits to employees on Form W-2 and taxable fringe
benefits to independent contractors on Form 1099-M. Fringe benefits include accident and
health benefits, achievement awards, adoption assistance, athletic facilities, de minimis
benefits, dependent care assistance, educational assistance, employee discounts, group term
life insurance coverage, lodging on school premises, meals, moving expense reimbursements,
no additional cost services, transportation or commuting benefits, employer-provided cell
phones, tuition reduction and working condition benefits.
Excise Tax: Many people don't consider excise tax as relevant to a school’s tax compliance
program, but here are some ways to identify it. For example, if a school is large enough to have
its own shuttle bus service, those buses may run on diesel fuel. The school may be exempt from
federal excise tax on purchases of fuel for the school.
STEP THREE: COMPLIANCE
Compliance is the recurring effort to achieve all of a school’s tax reporting obligations in a
timely manner. Business officers can accomplish this with well-defined policies and procedures,
but they can falter if they don’t pay attention to changing laws. This section shows areas for
improvements in policies and addresses some common types of non-compliance.
Compliance is ongoing. Tax decisions are made every day—for instance, when a transaction
triggers sales tax, employees are paid, an activity is subject to UBIT. The tax team working with
the business officer or controller assures that those obligations are met.
Tax compliance is essential—school administrators should not assume they can ignore
compliance just because the school is audited every year by a CPA firm or has never been the
subject of an IRS audit. Business officers also should not assume that the CPA firm that
performs the audit and supplies the board with audited financial statements will uncover tax
issues. That task is not part of the firm’s responsibilities.
Policies
Policies are essential, but they must be monitored and enforced. Business officers need to
determine who “owns” tax policies because they sometimes span many functions. Here are the
top 10 areas for tax-related policies and procedures at schools, based on an informal survey by
the author:

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1. Travel
2. UBIT
3. Nonresident alien (NRA)
4. Sales tax
5. Awards and prizes
6. Moving and relocation expenses
7. Reimbursements
8. Cell phones
9. Foreign national employees
10. Honoraria
Other policies schools may wish to add to the list include tuition reductions, Form 1099
reporting, commercial advertising, joint ventures with for-profit entities, gifts and prizes to
employees, and hiring and paying service providers abroad.
The business officer or tax manager should keep all written tax policies current, marking them
with the date created and annual review date. These policies are like a roadmap for your school
on how to do things correctly. Without them, the school reveals weaknesses to the IRS and
other tax authorities.
Enforcing Policies
Current, updated polices are important, but they also must be enforced. Remember this: “Trust
is not a control.” Resistance is common, since adhering to a tax compliance program often
means a change, but business officers must reject the “that’s the way we’ve always done it”
response. The business officer can become a tax advocate by including tax discussions in
administrative meetings and educating staff members at special meetings. Tax compliance
cannot be achieved if its responsibilities lie solely with the business office. It needs to be
advertised. It’s about building a tax team, inviting tax to the table and taking an active
management role in taxes for the school.
STEP FOUR: REPORTING
Reporting a school’s tax obligations to the IRS and other tax authorities occurs more than once
a year. A school is at risk if tax decision makers do not know when these reports are due and
who is completing them. It is critical to have a control mechanism like a tax calendar to monitor
all tax reporting obligations.
The business officer or other tax manager’s ultimate goal is to provide the correct information
on a timely basis to the federal, state and local governments. That work entails more than the
financial work done at the end of the year among various staff on campus, and it requires
collaboration among them.
Generally, reporting work begins once the school has made all tax deposits due throughout the

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quarter or year and has begun gathering all information necessary to complete the appropriate
IRS tax forms. For instance, reporting required for foreign students is a yearlong view of all
payments made to international students, scholars and researchers. These payments are all
summed up on the Form 1042 that must be filed with the IRS annually. The employment tax
form, however, is a quarterly filing. Thus, tax is not an annual event. It occurs daily, weekly,
monthly, quarterly, semiannually and annually.
Schools must complete some reporting obligations at calendar year-end and some at fiscal
year-end, but many other reporting requirements exist, too. Reporting to the IRS by making
deposits of tax and filing forms is a specific form of compliance that the government requires.
The following paragraphs offer some answers to the key questions facing the business officer or
tax manager involving the school’s tax obligations.
When Are Tax Deposits and Tax Forms Due?
Many different tax forms exist, and often they are due at different times of the year, month and
quarter. Due dates and deposit dates should be on the tax calendar. The business officer or tax
manager should review the tax calendar at least quarterly at tax committee meetings.
Who Prepares the Tax Forms?
The business officer or dedicated tax manager must determine who prepares the forms and
where these employees work. Their other duties should not conflict with their responsibility to
meet deposit due dates. They also should have adequate training and be aware of any changes
in tax law that might affect reporting of the school’s tax obligations.
How Does the Business Officer Know the Forms Are Completed?
Effective controls and monitoring processes will help the business officer ensure that all tax
deposits and filings are done on a timely basis. As noted earlier, it’s great to have written
policies, but they need to be looked at more than once year. When something goes wrong, the
business officer can use that event as an opportunity to correct or update the policy so the
issue or error doesn't happen again.
STEP FIVE: MONITORING
So far, this chapter has outlined the first four steps toward tax compliance:
 Being aware of the school’s tax obligations
 Identifying the various people, obligations and areas that are potential tax issues
 Creating procedures and policies that allow the school to meet all of its tax reporting
obligations in a timely manner
 Reporting tax obligations to the IRS and other taxing authorities more than once a year
and knowing who is assisting in the effort

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The fifth step, monitoring, is another continual activity and an obligation of the business office
on behalf of the school. Monitoring involves reviewing and managing a control system. It begins
at the top and filters downward throughout the various areas of the school. It is enterprise risk
management with a tax focus.

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A detailed mission statement can provide a focus for monitoring tax compliance. The statement
might list objectives for each functional area involved in tax issues. It should prioritize the
objectives in order of their importance to the strategic tax compliance program and assess risks
that could prevent the school from accomplishing its objectives. One objective could spell out
the degree to which policies and procedures are defined and documented. Others could outline
the degree to which certain functions are outsourced.
Ongoing monitoring should be a part of regular supervisory activities. A periodic meeting
should include monthly or quarterly reviews by management to test the effectiveness of the
school’s policies and procedures. Those policies and procedures should also include two areas
that schools sometimes overlook: how to report deficiencies, and what processes need to be
reported and to whom, so corrective action can be taken. Further, the school’s policies and
procedures should include a statement as to what risk is being controlled—in this case, the
financial risk of non-compliance including reputational and financial damage.
The business officer or tax manager should ask employees who handle tax issues how risk
activity is controlled, which tools they use to control risk and how they monitor risk through
reports and systems.
Consistency and Ease of Use
The business officer or tax manager should be the contact listed in the school’s written policies
and procedures for tax questions. This document should start out with a statement about the
need for tax compliance guidelines. Another section should outline the tax responsibilities of
various functions such as accounts payable or payroll. The document should also include a
glossary of uncommon terms, a list of required forms and where to locate them, and an
agreement for response or turnaround time. The guide should also feature a “frequently asked
questions” section that pertains to the most common tax situations encountered at the
departmental level. It is also helpful to provide completed examples of all forms the school
must submit. If forms are available online, the guide can provide links to that information.
Staying up to Date
Streamlining policies and procedures requires collaboration among various functions at a
school. The endeavor can be slow-paced; therefore it’s wise at the outset to bring to the table
everyone who might be impacted by policies. Include areas such as legal, human resources,
payroll, internal auditing, risk management, property control/asset management, purchasing
and accounts payable.
The internal auditing group, included in the group above, can serve as an effective means of
monitoring compliance during tax discussions. One easy question that an internal audit can ask
of different functions is, “Do you sell anything?” With the answer to that one question, the
business officer can determine if the school has any liability for sales tax or UBIT.

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Monitoring compliance is another ongoing activity in a tax compliance program. It involves:
 Having policies in place that address the tax aspects of activities at a school
 Setting up requirements to review policies annually as tax laws change
 Assigning responsibility for ownership of tax policies
 Including internal audits as an ally in monitoring tax compliance
 Hiring a tax manager or centralizing tax responsibilities to the extent possible
With these five steps in place, the business officer can feel that he or she has taken the steps
necessary to propel the school toward Tax Nirvana.
STEP SIX: TAX NIRVANA
Following the five steps above will take a school to the state of being fully compliant with all tax
laws. Tax Nirvana occurs when everyone at a school is involved in tax compliance, aware of and
able to identify potential tax issues, and able to comply with requirements for reporting,
deposits and filings. Through constant monitoring and complete reporting to all tax authorities,
the school will remain in this state and be able to defend itself against challenges.
CONCLUSION
Tax-savvy independent school business officers can build a strong foundation for tax
compliance by knowing about the different types of taxes, raising their own as well as their
colleagues’ awareness of tax issues and identifying areas on campus where tax issues may exist.
While it may seemoverwhelming to comprehend an entire school’s tax liability, having a solid
tax team as a partner is an invaluable tool toward becoming and staying compliant.
Compliance means constant training on changing tax laws for everyone involved. Independent
school business officers don’t need to be tax experts, but they do need to be conversant in
major areas and to put controls in place that easily identify lapses in tax compliance.
Contributing Author
Steve Hoffman
TheTaxTranslator.com
As “The Tax Translator,” Steve helps colleges and universities and other nonprofits set policies
and procedures regarding tax issues. He worked for the IRS for 15 years and was a tax manager
for three universities for 12 years. By translating tax talk into plain English, nonprofit
organizations can understand how tax issues affect them, gain protection against IRS action and
maintain their nonprofit status. In addition to providing tax advice and guidance, Steve helps
organizations resolve tax issues and represents them in audits. He holds the designation of
Enrolled Agent before the IRS (EA), which allows him to represent nonprofits in tax matters.
Steve is a frequent presenter on tax compliance and other tax-related issues and the author of

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many articles and two books, Resources from The Tax Translator and Taxation for Colleges and
Universities: Six Steps to a Successful Tax Compliance Program.
RESOURCES
Hoffman, Steve. Resources from The Tax Translator.
----. Taxation for Universities and Colleges: Six Steps to a Successful Tax Compliance Program.
IRS Form SS-8: Determination of Worker Status for Purposes of Federal Employment Taxes and
Income Tax Withholding. http://www.irs.gov/pub/irs-pdf/fss8.pdf
Another Resource is my web page: TheTaxTranslator.com and then directed to the tab called,
“Tax Stuff for You”
TAX TOOLKIT ON NBOA.ORG tk