Paul L. Caron
Dean


Sunday, May 18, 2014

Tax Consequences of NYU's $7,000/Month Multi-Year Rent Subsidy for NYC Apartment for Harvard Prof

New York Post, Why NYU Gave a Harvard Professor a Cheap Apartment:

NYU (2014) 2For years, New York University has leased a luxury flat in Chelsea to famous academic Henry Louis Gates Jr. at a deeply discounted rate despite the fact that Gates teaches at Harvard — not NYU. ...

Gates admitted to the The Post that he has long received his pricey housing perk even though he has never held a job at NYU. Instead, Gates said he has an informal “consultancy” with Sexton that is ungoverned by a written contract.  In addition to advising Sexton’s administration on affirmative action and minority faculty hiring, the African-American studies luminary said he has given three or four free talks at NYU over the years.

Gates also suggested that Sexton bestowed the apartment on him as part of an unconventional — and thus far unsuccessful — courting ritual that has dragged on for more than a decade. It isn’t exactly a secret that President Sexton would very much like to recruit me to the NYU faculty,” Gates said. "Although I do not have an offer from NYU, and while I am very happy at Harvard, were I to move anywhere… no university would beckon to me more strongly than NYU,” he added.

Gates said he pays the “full faculty rate” to rent the two-bedroom flat, located in a sleek tower at 120 W. 15th St., but declined to be more specific about the price.

Insiders said two-bedroom apartments in the tower, which boasts a fitness center, outdoor terraces and a 24-hour doorman, are heavily subsidized for NYU faculty, renting for as little as $2,200 a month.  By comparison, a two-bedroom apartment in the adjacent building at 130 W. 15th St., developed in 2002 by Related Cos. in tandem with the NYU tower, is currently being offered at $9,195 a month. ...

The real estate perks come as NYU students have been slapped with the some of the highest tuition fees and skimpiest financial aid in the country. ...

Asked for an explanation of the arrangement, NYU spokesman John Beckman said in an email that Gates “participates in a range of activities in the academic life of the NYU community.”  Beckman also said “NYU has made no secret of its longstanding desire to recruit Professor Gates.” He didn’t respond when asked whether NYU has given housing perks to other professors in an effort to recruit them.

Future of Capitalism, Henry Louis Gates New York Apartment:

What struck me about the deal, though, were the potential tax issues. If NYU just paid Professor Gates $7,000 a month for his lecturing and consulting services — the approximate difference between the rent for a faculty apartment and the free-market rate in an adjacent building, according to the Post article — he'd have to declare it as income and pay income taxes on it. The apartment is a less clear-cut case. Maybe one could make a case that it needs to be declared as barter income by Mr. Gates, and maybe he does make that declaration. But it's a reminder that as marginal tax rates increase, there are all kinds of ways that people will find to pay each other in ways that don't necessarily create easily traceable, IRS-recognizable "income."

Section 119(d) excludes from income "qualified campus lodging" furnished to "employees" -- Prof. Gates does not appear to be NYU's employee for this purpose.  But Gregg Polsky notes that perhaps NYU is using the rental to Prof. Gates to shield NYU faculty having income of $7,000/month.  Section 119(d) requires that faculty are taxable if they pay "inadequate rent," which § 119(d)(2) defines as "(A) the lesser of (i) 5 percent of the appraised value of the qualified campus lodging, or (ii) the average of the rentals paid by individuals (other than employees or students of the educational institution) during such calendar year for lodging provided by the educational institution which is comparable to the qualified campus lodging provided to the employee, over (B) the rent paid by the employee for the qualified campus lodging during such calendar year."  So does the $2,200/month rent paid by Harvard's Gates establish what constitutes adequate rent for NYU faculty for § 119 purposes?

(Hat Tip:  Jacob Gershman.)

https://taxprof.typepad.com/taxprof_blog/2014/05/tax-consequences-of.html

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Comments

I can't speak to the regulations, but this is pretty clearly not what the legislature had in mind in enacting sec. 119. But then NYU, which talks about "social justice" while engaging in some of the most aggressive tax planning in the country, is probably not what people had in mind in enacting sec. 501(c)(3) either. As an Italian folk song once put, the day of accounting for nonsense like this cannot be very far off.

Posted by: michael livingston | May 19, 2014 4:41:36 AM

PS See today's NY Times for further evidence of NYU's commitment to social justice (paying starvation wages to workers at their new Abu Dhabi "campus")

Posted by: michael livingston | May 19, 2014 4:54:33 AM