TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, July 15, 2014

IRS Says President's Use of University-Provided House Constitutes Taxable Income

Columbus Dispatch, IRS Sees Ohio University President’s House as Taxable:

AthensWhen Roderick J. McDavis became Ohio University’s president a decade ago, he moved into 29 Park Place, a 7,000-square-foot, 2 1/2-story home at the heart of OU’s campus in Athens.

The rent is free, and McDavis’ contract says he has to live in the house. Plus, it’s convenient for McDavis, administrators, faculty members and students to have him so close to the office.

So should he pay income taxes on the house as a benefit? Many Ohio universities say no. The Internal Revenue Service says yes.

An ongoing IRS audit of OU found that McDavis should pay taxes on his free residency at OU. The university’s board of trustees thought otherwise, voting last month to cover the “unexpected” cost: about $19,000 in federal, state and local taxes for this year. ...

Including his salary, bonuses and other pay, McDavis made nearly $600,000 during the 2013 fiscal year. ...

Meanwhile, several leaders of other Ohio universities with arrangements similar or identical to OU’s are still living tax-free, The Dispatch found. Ohio State University and at least five other universities own their presidents’ residences, and none asks its president to pay rent or taxes.

The tax code has three conditions that employers must meet for such an arrangement to be tax-free: Lodging must be furnished on an employer’s business premises, which some universities believe can include off-campus houses; it must be furnished for the employer’s convenience; and the employee must accept it as a condition of employment.

It’s unknown which of those conditions the IRS said McDavis was not meeting. McDavis’ contract says he must live at 29 Park Place, which is on the campus. That suggests the IRS believes that McDavis doesn’t live on campus for the university’s “convenience,” said Ted Johnson, a Columbus-based tax and litigation support partner for Parms + Company.  ... “If what the IRS concluded when they audited OU is correct, you’ve got a ticking time bomb with these other universities,” Johnson said. “The IRS is aware of that, and if they’re smart, they will see this as a possible audit point.”

For more, see A Federal Income Tax Guide for College and University Presidents

(Hat Tip: Inside Higher Ed.)

Legal Education | Permalink


Did I say we'd be hearing more about this sort of thing in the future?

Posted by: michael livingston | Jul 15, 2014 5:09:07 AM

Pitiful! He makes $600,000 a year and gets a large, rent-free home, and yet he doesn't want to pay taxes on the home as income. Meanwhile OU students are going so deeply in debt, they may take decades to pay off their student loans.

On this one, I think I'm siding with the IRS.

Posted by: Michael W. Perry | Jul 15, 2014 5:21:42 AM

With an income of $600,000, he cannot afford to pay $19,000 in additional taxes, so the University has to gross-up that? The horror!

Posted by: Andy Patterson | Jul 15, 2014 5:27:38 AM

I think these colleges are really pushing the "for the benefit of the employer" angle a little far to claim this is a tax free benefit. How many times is a university president rushing to campus because there is a problem that needs to be solved, like a hotel manager with complaining guests? Is the president running to the dining hall to make sure there is plenty of mac & cheese for the late night diners? Is the a donor beating down the administration buildings door with a huge check that they are threatening to tear up if the president does not arrive post-haste? For $600,000/year, the president of OU can buy most of Athens and the surrounding area.

Posted by: Daniel | Jul 15, 2014 7:30:55 AM

There's a president living rent free at 1600 Pennsylvania Avenue and who also takes frequent advantage of free golfing privileges at a nearby government facility -- all for doing nothing. Hey, IRS, there's your next target!

Posted by: Woody | Jul 15, 2014 7:42:23 AM

The story also reports

>The university is also going to cover the taxes on McDavis’ term life insurance, which the audit also said was taxable, bringing the total to about $30,000.<

There is no question the school invited an audit with that mistake, just as there is no question that computation of tax on group term life is scandalously unfair.

Left unreported is how often school officials, professors and students were invited to the home. It is difficult to prove convenience if except for commuting time the home could be 25 miles from campus.

Posted by: Bob Kamman | Jul 15, 2014 8:14:37 AM

This should be an easy win for the President and University, nevermind that Section 119 is without logic and only helps the highest paid employees. It might have once been motivated by the desire to fairly tax work-camp laborers who had to live in drafty barracks but today it mostly serves as a fat tax break for those already earning more than half a million bucks a year. Sounds like the University just needs to make a proper record and then just waltz into the end zone.

Posted by: Darryll Jones | Jul 15, 2014 9:20:46 AM

Naturally, the university should now gross him up for the tax loss . . . .

Posted by: HTA | Jul 15, 2014 9:24:10 AM

@Woody. If you want anyone to take any of your postings slightly serious,then maybe you should back off the hyperbolic rantings just a smidge. You know, not injecting some off-topic political jab into a discussion of university presidents and their housing. Just a suggestion.

Posted by: Daniel | Jul 15, 2014 9:41:00 AM

Daniel, it's the same principle, unless you believe that there is a one set of laws for "the little people" and a separate set of laws for high-ranking politicians.

Posted by: Woody | Jul 15, 2014 11:33:21 AM

@ Woody, are you kidding me? I guess we should be having heads-of-state role on down to the IHOP with the sitting President to discuss matters. I know, I should not feed the trolls, but you are truly off-your-rocker crazy to even try to compare the same thing. Additionally, your argument could be applied to any sitting President, but your petty little mind could only think of an Obama jab. Pathetic.

Posted by: Daniel | Jul 15, 2014 11:50:25 AM

No, Daniel. You have it wrong. I focus on principles rather than situational ethics, and I did consider that my suggestion would apply equally to other parties and politicians.

When it comes to applying rules equally, I get upset when traffic in town gets shutdown, especially during rush hour, just so the Pres., V.P., or some other politician can tool around quickly on their visits and fundraisers. Let them deal with the same traffic just like “common citizens.” We also have deadlines and places to go…and without an airplane that will wait on us. I also think that Washington politicians and their staffs should be held to the same Obamacare requirements as everyone else. Regarding free housing, maybe Obama’s mother-in-law living in the White House could pay some rent. And, I believe that tax rules should be applied evenly – even to -- no, make that especially to Presidents.

It seems that it is you who is trying to troll me. Just skip past my comments if you don’t like them and spare me your wisdom.

Posted by: Woody | Jul 15, 2014 5:21:08 PM

What about NYC? Trend lately has been for mayors to not live in Gracie Mansion. Does the next mayor to choose to live their get nailed with a big tax bill?

VP Biden is also provided a home at taxpayers' expense.

Posted by: Chuck Simmins | Jul 15, 2014 5:53:50 PM

Let's set the baloney aside for a moment. Does anyone have an idea about what the IRS is pointing to , to knock the fellow out of Section 119?

Posted by: eli bortman | Jul 16, 2014 3:11:12 PM