IRS concludes University employment tax audit
Aug 28, 2014
From staff reports
Ohio University is actively taking steps to strengthen its business practices to ensure compliance with ever changing and evolving tax regulations, following an employment tax audit by the Internal Revenue Service (IRS). The audit, which reviewed calendar years 2011 and 2012, began last September and recently concluded.
The determinations and related business practices are summarized to the following:
- 2011/2012 Early Retirement Incentive Program (ERIP) – Certain payments made to 403(b) accounts as part of the ERIP were determined to be taxable compensation to the impacted employees. This finding affected 41 employees of the 295 who participated in the ERIP. The University paid $597,921.35 on behalf of our employees and $185,000 in plan sanctions to settle this finding.
- Social Security and Medicare taxation of students -- Students working during the summer, who did not meet the federal eligibility requirement for exemption from Social Security and Medicare taxes, should have had these taxes withheld and remitted to the respective agencies. The University paid $176,640.25 in taxes for more than 1,100 summer student workers.
- Reporting of settlements – Certain components of settlements were deemed taxable income but were not reported as wages. This item resulted in an assessment of $10,742 in additional taxes due for two employees.
- Classification of individuals as employees versus independent contractors – A few individuals who held multiple but varied positions at the University were treated as independent contractors but were deemed to be employees by the IRS. As a result of this mischaracterization, the University paid $16,514 in employment taxes for an unspecified number of employees.
- Taxation of non-cash taxable fringe benefits – Several executives were provided non-cash taxable fringe benefits consisting of vehicles available for both business and personal use, as well as life insurance benefits. Other employees were provided non-cash taxable fringe benefits such as employer-provided rental payments, clothing or uniforms. None of the benefits provided above were reported as income. The University paid $51,360 in employment taxes on behalf of seven executives and an unspecified number of employees who received these taxable benefits.
- Personal use of President’s residence – The portion of the president’s residence used primarily for personal use was deemed to be taxable income to the President. As a result of this finding, the University paid employment taxes of $15,861 to the IRS on behalf of the president.
The IRS determinations resulted in a total settlement of approximately $1.054 million dollars to the federal government in additional employment taxes and sanctions for the covered audit periods.
All individuals affected by the audit received personal communications explaining the situation as it pertains to them personally. The University’s position on resolving findings related to the IRS audit has consistently been that individuals affected should not incur personal expense in resolving the IRS determinations. These individuals do not need to refile or amend their tax returns; they are receiving corrected tax forms from the University for their records only.
Information for this report was provided by Ohio University Human Resources.