IRS Will Audit Colleges on Tax Withholding for Foreigners

Amjad Khan

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• Publié par: Orkoi
• Nombre de lectures: 13
• Langue: English

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IRS Will Audit Colleges on Tax Withholding for Foreigners
Chronicle of Higher Education – July 7, 2003
Page 1 of 2
By MICHAEL ARNONE understaffing or poorly trained necessary, they can file amended
personnel at colleges, has left or delinquent tax returns.
The Internal Revenue Service is many institutions not knowing Colleges that ignore the
gearing up to audit more than exactly how to respond. compliance letters might later find
250 colleges that, it suspects, IRS agents knocking on their
have not adequately withheld The amount of tax withheld doors to conduct in-person audits.
taxes from foreigners who are not depends on the nature of the
permanent U.S. residents. The payment -- such as from a For now, the agency also expects
campaign is the result of the scholarship or fee for services to send agents to 12 institutions
for on-site audits, the IRS officialagency's dissatisfaction with the rendered -- and whether the
rate of participation by colleges in country from which the foreigner says. Those audits, which could
an IRS program that encouraged comes has a tax treaty with the last several months, will involve
them to voluntarily admit their United States that affects the only payments to foreign citizens.
failure to comply with regulations person's tax liability.
on tax withholding. In choosing which institutions to
A Year of Audits audit, the IRS is using the annual
IRS officials have said that this "Open Doors" report, published
new round of audits will root out In January 2001, the IRS started by the Institute of International
institutions that have not followed its Voluntary Compliance on Alien Education, tallying Americans who
the law. College officials, on the Withholding Program, in which study abroad and foreign students
other hand, say the IRS should colleges aware that they were not and scholars who come to the
have expected a poor response. in compliance with the law could United States. The agency will
"A lot of schools that had been work with the agency. If colleges look at all colleges that have 100
paying attention to the rules were participated, says Bertrand M. or more foreign students,
already in compliance and didn't Harding Jr., an Alexandria, Va., comparing the number of
pay attention to the program," lawyer who is an expert on foreigners at an institution with
says Kelly D. Farmer, university college-tax issues, "the IRS said it the number of 1042-S forms it
tax director at the University of would cut them a lot of breaks in has filed with the IRS. The form
Minnesota-Twin Cities. terms of tax liability." If they did records nonwage payments, such
not, "the IRS will go out and find as scholarships and fellowships,
And if colleges know that they are them and wring their necks into made to nonresident foreigners,
not in compliance, they may not compliance through an audit." as well as payments to
come forward for fear of being independent contractors and
penalized, says Donna E. Kepley, The program ran until February guest speakers.
a tax lawyer who is president of 2002. In that time, however, only
Arctic International LLC, a 8 to 12 institutions participated, "If they see few 1042-S's at a
company that has created says an IRS official who school with thousands of foreign
software to help colleges and requested anonymity. "I was students," Mr. Harding says,
other institutions keep track of surprised. It seemed to be an "there's something wrong." The
tax withholding for nonresident industrywide problem." IRS will also look for 941 forms,
aliens. Many colleges "want to do which are quarterly tax returns
the right thing," she says, "but The IRS announced the new that can help track wages paid to
are afraid they will get slammed round of audits last December. foreigners.
in an audit." The audit cycle should start by
September 30 and should take The IRS is willing to cut certain
Both the IRS and colleges face about a year, says the IRS breaks to colleges that come
risks in the new campaign. The official. Because the agency lacks forward through the new
IRS could sink years of work into sufficient staff members and program. Those that comply now
audits that turn up little or money to scrutinize every will get some relief on late-
nothing. But institutions that are institution it suspects of payment penalties, the IRS
found to have violations could violations, the majority of the official says. But the program
face millions of dollars in tax colleges being investigated will does not release colleges from
assessments and penalties. receive "compliance letters" the obligation to pay taxes or
instead of actual visits by interest. The official
auditors. The letters will indicate acknowledges that the lack ofEnrolling or hiring nonresident
aliens can pose complicated tax the IRS's belief that the colleges amnesty might reduce the
questions, even by the owe tax money. The colleges will incentive that colleges with
labyrinthine standards of federal have the opportunity to explain violations would have to come
tax law. The complexity of the why they think they should be forward.
law, sometimes coupled with exempt from paying. IfIRS Will Audit Colleges on Tax Withholding for Foreigners
Chronicle of Higher Education – July 7, 2003
Page 2 of 2
Colleges that fail to comply, assessments on colleges that proposed the program, many
though, will pay additional were not reporting and institutions were already in
penalties and interest. "If you're withholding taxes on nonresident compliance.
completely noncompliant," the foreigners as they should have
IRS official says, "it can be been. Since then, Mr. Gernold Whether or not the audits will
expensive." Failure-to-file says, many colleges have yield anything, college officials
penalties and failure-to-pay emphasized tax compliance; at were not pleased when the
penalties can each add up to 25 national tax conferences, investigations were announced
percent of the total tax owed. In attendance at seminars on taxes last winter. "We felt they were
the past five years, Mr. Harding affecting nonresident aliens has trying to be a little bit vindictive"
says, he has participated in two shot up. for the low turnout, says
audits that had two higher- Minnesota's Mr. Farmer.
education institutions each paying Such preparedness raises the
at least $1-million in back taxes. possibility that the forthcoming But relations between college tax
audits could turn up little or officials and the IRS have
Too Late nothing, Mr. Gernold says. The improved since then, Mr. Farmer
IRS did a complete audit of says.
Ironically, the low response rate Houston between 1997 and 2001,
to the program may be because it he says, and found things largely For one thing, IRS officials have
arrived too late to do many in order. One misunderstanding of explained whom the agency
colleges much good. Institutions tax law, he notes, did lead to the would audit and why. As far as he
have taken tax compliance university's owing a small amount knows, that is a first. "The IRS is
seriously since the early 1990s, from tax withholding for being really fair about this," he
says R. Keith Gernold, tax foreigners. says. "It's not in their normal
director at the University of procedures to bring people in and
Houston. At that time, he says, Even IRS officials admit that let them know this kind of stuff."
the IRS began levying heavy perhaps by the time the agency