Fiesta fiasco: Duck suits dodging federal tax laws
The shenanigans that go on at the state university in Eugene never fail to amaze. From the surprisingly excellent faculty watchdog blog UO Matters, today we get the long list of administrative types who, with their spouses or significant others, were offered free rides to the recent Tostitos Fiesta Bowl football weekend.
Amazingly, the recipients were told that the university would pay their and their spouses' way to the game, which is held in Arizona, and that the reimbursement of the administrators for all of the couples' expenses would be tax-free:
It's hard to read the shabby pdf file that the university produced when the blogger asked for it, but here's the sentence that jumped out at us immediately:
As a member of the official delegation, you and your spouse or domestic partner may have your travel, lodging, meal and ticket expenses paid or reimbursed, and such payment or reimbursement has no tax consequences.
Wow. Just wow. Even if you could come up with a business reason that constitutes the primary purpose for sending this many administrators to the game and party weekend -- a proposition that is dubious, to say the least -- excluding the amounts paid for the travel of their spouses and spousal equivalents is contrary to the tax laws. It's so contrary, in fact, that to an enterprising IRS agent, it could constitute fraud.
As passed by Congress, the law on the spouses really could not be clearer. Here is section 274(m)(3) of the Internal Revenue Code (26 U.S.C.):
No deduction shall be allowed under this chapter (other than section 217 [relating to moving expenses]) for travel expenses paid or incurred with respect to a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless—(A) the spouse, dependent, or other individual is an employee of the taxpayer,
(B) the travel of the spouse, dependent, or other individual is for a bona fide business purpose, and
(C) such expenses would otherwise be deductible by the spouse, dependent, or other individual.
Now, as a few hardy readers have pointed out on an earlier version of this post, an IRS regulation, Reg. sec. 1.132-5(t), twists the law around a bit. The regulation states that if the employer's deduction is disallowed by IRC sec. 274(m)(3), just quoted, then the employee merely has to show a "bona fide business purpose" for the spouse's "presence on the business trip" in order to exclude the reimbursement. But the proposition that there was a "business purpose" for sending the spouses to the party weekend in Arizona is ludicrous.
We dare UC Nike to show the world the professional opinion they got that the spousal reimbursements are not taxable. Don't they teach tax law and accounting down there? Not by example, apparently.
Will the IRS do anything about this? Who knows? But if we were (a) one of the people who took the trip and got reimbursed, or (b) the payroll people at the university who aren't going to withhold any taxes on those reimbursements, we'd be extremely nervous.
[This post was revised late this afternoon, from a version posted earlier this afternoon, to address the readers' point.]
| Posted at 5:20 PM | Permalink |
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Comments (16)
And they didn't even put men's golf coach Casey Martin on the list.
Posted by Tiger | January 28, 2013 1:02 PM
Why the surprise?
UC-Nike administrators have, for decades, had a mind set that they are "different" and "special", entitled to a all times and in all hings ignore the state laws and regulations which apply to the rest of Oregon. And, up until the well deserved firing of LaRiviere, the rest of state government has indulged and encouraged the fantasy among the UC-Nike administrators.
I should be no surprise to anyone that the UC-Nike administration views federal law in general, and the IRC in particular, as no import, consequence or applicability to them
Posted by Nonny Mouse | January 28, 2013 1:24 PM
And one more thing...major kudos, again, to UO Matters. Another good job.
Posted by Nonny Mouse | January 28, 2013 1:26 PM
The question is, will the IRS care? This is Oregon after all, the special place, where "things are different".
Posted by Mr. Grumpy | January 28, 2013 1:49 PM
Schmoozing isn't a bonafide business purpose? The chutzpah is a bit -- or more -- shocking. Like it would kill any of these people to pay even that, even the taxes on their extended-family gifts.
Hope you continue to track this.
Posted by sally | January 28, 2013 2:19 PM
Exceptionalism...It's the 'American Way'...it's the 'Oregon Lifestyle'.
Posted by godfry | January 28, 2013 3:03 PM
I think the path they are on is Working Condition Fringe benefit. Reg §1.132-5(t) Where employment is not required, only bonafide business purpose or otherwise deductible as ordinary and necessary.
Posted by will | January 28, 2013 3:30 PM
Should I get the feeling that the facts in this issue haven't been completely reported?
Posted by David E Gilmore | January 28, 2013 4:05 PM
As a parent of a prospective Oregon college athelete, what do I have to do to get on the delegation list? Should I sneak up with little freebies, or go full on for a paid holiday that's hidden by unrelated scandals.
Posted by dhughes609 | January 28, 2013 4:18 PM
One wonders if these perks would apply - of if there would even be an interest in attending - if it were a conference on Educational Ethics rather than a bowl game.
Posted by NW Portlander | January 28, 2013 6:24 PM
Soon the UO administration will claim that part of the "business purpose" of bring along the spouses was to solicit donations for UO. Unfortunately there's this paper, by UO business school professor Dennis Howard, showing that
"Both alumni and non-alumni show an increasing preference toward directing their gifts to the intercollegiate athletics department-at the expense of the donations to academic programs. Sperber's (2000) assertion that giving to athletics undermines academic giving is strongly supported."
Not relevant to the Ducks? Actually, it's based on data Howard got from donations to the Ducks and to UO's academic side: http://www.uomatters.com/2011/01/uo-prof-on-athleticacademic-donation.html
Posted by uomatters | January 28, 2013 7:24 PM
They treat the IRS the way they treat the NCAA. Some day there will be a perp walk down there. We can't wait.
Posted by Jack Bog | January 28, 2013 7:46 PM
Just go out into the "real world" if you want to verify that donations to athletics outweigh donations to academics ... no contest. Might as well howl at the moon.
Not to disparage any of your research or howls, Mr. UOMatters.
That was one of the gripes about the Chipster, that he didn't schmooze enough with the party faithful whose only allegiance that counts is their annual donations. The winning record may well have been enough -- but it could have even more, even a lot.
They think they're starving. Believe it.
Posted by sally | January 28, 2013 7:51 PM
Assuming something is done by the IRS, what's to stop UO from just grossing up the reimbursement amounts to pay for the taxes?
Posted by Andrew | January 28, 2013 7:57 PM
Well, that would be additional income to the employees, which would require more tax. And if the U paid that tax, it would be more income, triggering more tax, etc. In short, to indemnify fully for the taxes would be quite expensive.
And quite public, of course, as long as UO Matters is around to watch.
Posted by Jack Bog | January 28, 2013 7:59 PM
Along the same lines as Andrew, don't companies when they hand out, say, award trips to employees they then gross up the cost of the trip so that the employee doesn't have to pay taxes on it? If so, wouldn't this be the same sort of deal?
I don't have a dog in this fight, just curious.
Posted by Joe | January 29, 2013 7:49 AM