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Senate and House Panels Examine Education and Non Profit Tax Policy

July 27, 2012—The Senate Finance Committee held a July 25 hearing on education tax incentives and the House Ways and Means Oversight Subcommittee held a July 25 hearing that focused on 501(c)(3) public charity organizations, unrelated business income tax, and the revised Form 990. At both hearings, few concrete legislative changes were discussed.

Senate Finance Committee Chair Max Baucus (D-Mont.) opened the full committee hearing by describing “skyrocketing college costs” and “the multitude of education tax benefits [that] can result in complexity and confusion for American families.” James R. White, director, Strategic Issues, Government Accountability Office (GAO), testified that tax filers do not always choose tax expenditures that maximize their potential tax benefits. Additionally, GAO found that despite the Department of Education’s research efforts, evaluative research on the effects of federal assistance for higher education on student outcomes—such as the likelihood students will complete their education—remains limited. Several witnesses noted that education tax benefits were less effective because they are not received until the following year.

In his opening statement, Ranking Member Orrin Hatch (R-Utah) described the “Bennett hypothesis,” in which federal financial aid programs lead to higher tuition as colleges capture some of the federal aid to students. In response to questions from committee members, witnesses disagreed on whether increased federal tax incentives for education ultimately result in increased tuition.

Sen. Jeff Bingaman (D-N.M.) asked witnesses for any existing legislative proposals. While no proposals were mentioned by name, Susan Dynarski, professor, University of Michigan, referenced a bill designed to use Internal Revenue Service (IRS) tax information to determine eligibility for federal aid.

The July 25 Ways and Means Oversight Subcommittee hearing was organized by Subcommittee Chair Charles Boustany, M.D., (R-La.). Steven T. Miller, deputy commissioner for Services and Enforcement, IRS, noted that Form 990 had not been significantly revised since 1979 and neglected the size and complexity of universities and hospitals, as well as issues such as executive compensation. He also noted that Form 990 revisions still would be discussed to “ensure they have gotten it right,” and that there is “probably” too much burden in some of it.  Mr. Miller later indicated that the 990R might be one of those areas.

Inquiring about unrelated business income, Chairman Boustany described the rules as “an ongoing source of confusion and certainly a challenge from the compliance stand point.” Mr. Miller expressed difficulty in determining what is “substantially related” and what expenses should be taken against unrelated business income, but did not have legislative recommendations.  This sentiment was echoed by additional university witnesses.

Thomas K. Hyatt, partner in the law firm of SNR Denton and head of their health law practice group, testified on to the current state of complexity in the organization and operation of non-profit tax-exempt public charities, specifically referencing large hospitals and universities.  Mr. Hyatt noted, “While corporate complexity is a reality in the institutional side of the nonprofit sector, in my view this is not a problem which requires a change in the law to resolve. Rather, it is an environment which both invites and deserves continuing scrutiny and transparency to ensure that public charities are acting in accordance with their tax-exempt purposes and with applicable law.”


Matthew Shick, JD
Director, Gov't Relations & Regulatory Affairs
Telephone: 202-862-6116


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Washington Highlights, a weekly electronic newsletter, features brief updates on the latest legislative and regulatory activities affecting medical schools and teaching hospitals.

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