Audit guidelines for nonprofit colleges less burdensome for bond financings.

WASHINGTON -- The IRS' final audit guidelines for nonprofit colleges and universities are far less burdensome for tax-exempt bond financings than those proposed more than a year and a half ago, IRS officials and lawyers in the private sector said yesterday.

"We tried to cut back requirements in some areas like the tax-exempt bond area," an Internal Revenue Service official said.

The final audit guidelines, which were issued in Announcement 94-112 last week, are immediately effective for IRS field agents who are responsible for auditing nonprofit colleges. and universities, the official said.

The 36 pages of guidelines contain only one paragraph on tax-exempt bonds, which directs agents, in auditing colleges and universities, to make sure that any bonds used to finance projects comply with the institution's exempt purpose and with the relevant tax laws.

"Contact the key district bond coordinator if compliance is unclear," the guidelines say.

The guidelines also say that agents should determine whether any private parties will benefit, directly or indirectly, from the facilities that are financed with bonds. The tax law prohibits 501(c)(3) nonprofit organizations from unduly benefiting any private persons, either employees or outsiders.

The final audit guidelines are far simpler than the ones the IRS proposed in late 1992.

The earlier guidelines would have directed the field agents to review reams of bonds documents for the bond financings of the colleges and universities they were auditing.

They would have directed field agents to investigate numerous issues in connection with bond financings, including whether they were "reasonable" given the financial situation of the college or university and whether they were prudently managed.

The IRS official said yesterday that while the earlier guidelines directed agents to get all possible bond documents when auditing any college or university with bond financings, the final guidelines suggest that such extensive information is not needed unless there is some indication that there might be a problem with their bonds.

Milton Cerny, a lawyer with Caplin and Drysdale in Washington, D.C., agrees that the guidelines are less burdensome for bond financings.

"The voluminous record-keeping requirements that were in the proposed guidelines are no longer there," Cemy said.

However, "the IRS has issued other bond guidelines that need to be observed," he said.

Cerny said that he was referring primarily to IRS guidelines for agents reviewing applications from organizations seeking tax-exempt status. Those guidelines direct agents to make sure the planned tax-exempt financings will not improperly benefit private parties.

The final audit guidelines issued last week for colleges and universities also direct IRS agents to review an institution's investment portfolio to make sure the investments do not result in improper private benefit or inurement.

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