Tax Tips for Higher Education

ISSUE:

As Bible Colleges and Seminaries contemplate alternative sources of revenue in these fast-changing times, could a “thrift store” that operates as a ministry and a money-maker be a viable option?

SITUATION:

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Controller at MBC called to ask about how the IRS taxes “thrift stores.”

“We have some space in a building on campus where we used to keep our bookstore inventory.  Now, most textbooks are electronic and we’ve moved our T-shirts, coffee mugs, etc. to a storage closet.  With that space freed up, we have been wondering what to do in there.

“MBC formed a task force of faculty, students, staff, and alumni to brainstorm about different ideas for alternative revenue sources.  One of the top ideas was to open a thrift shop that could also operate as a ministry.  The idea would be to have the store open six days a week and take certain donations of clothing, furniture, and household items.  We could also give away items as needs arose.  Part of the plan would be to have events in August and January where students could ‘win’ Monopoly money that could be spent to help furnish their apartments and/or dorm rooms.  As we think this through, would we have to pay taxes on net income from the store?”

ISSUE: Although it will not affect most not-for-profit institutions – unless you have UBIT deductions – the Taxpayer Certainty and Disaster Tax Relief Act of 2020 added a temporary exception to the 50% limit on the amount that businesses may deduct for food or...

ISSUE:

In December 2020, the IRS issued guidance that CARES Act “student grants” from Higher Education Emergency Relief Fund (HEERF I) would not be reported on the 2020 Form 1098-T.  Now, the IRS has issued updated guidance on whether higher education institutions have any requirements under the I.R.C. to report information on Form 1098-T for 2021 with regard to emergency financial aid grants under HEERF I, HEERF II, or HEERF III (from the CARES Act, CRRSA, or ARP.)

SITUATION:

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

DCC’s CFO called to ask us about whether student grants might need to be included in the 2021 Form 1098-T – which would be filed in early 2022.

“Some of the HEERF student grants – from all three sets of funding – may be applied to student accounts or used by students to pay us for tuition, fees, other charges.  Do we have to report any of that on Form 1098-T for this year?”

“Great question.  On March 30, 2021, the IRS updated their Higher Education Emergency Grants FAQs.  The FAQs do not specifically cover student grants from HEERF III (ARP).  The Q&A format contains a lot of information for students and schools included in six FAQs.  In FAQ #6, they specify that any amounts of student grants that qualify as ‘qualified tuition and related expenses’ (QTRE) must be reported by institutions in Box 1 of Form 1098-T.  Further, you do not need to report the grants in Box 5.”

The Taxpayer First Act contains a provision which requires certain exempt organizations to file information and tax returns electronically for tax years beginning after 7/1/19 – this includes Form 990-T, Exempt Organization Business Income Tax Return. For institutions with a June 30 year-end, this would mean the year ended 6/30/21 as their 6/30/20 year began before 7/2/19.

The issue has been that Form 990-T (which first appeared in 1951) has never been positioned by the IRS for eFiling.  Pending conversion of Form 990-T to electronic format, the IRS has continued to accept paper copies of 2019 returns.

ISSUE:

On March 19, 2021 the Department of Education (ED) issued several sets of HEERF guidance including “Higher Education Emergency Relief Fund (HEERF I, II, and III) Lost Revenue Frequently Asked Questions.”  FAQs #3 and #4 seem to unearth an unsettling issue that we should all be cognizant of.  These FAQs can be found at:  heerf lost revenue faq (ed.gov).

SITUATION:

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

SCC’s CFO called us with a question about ED’s recent guidance on HEERF “lost revenue.”