Overview: Areas of Tax Concern

The University is committed to complying, in all respects, with the Internal Revenue Code, Regulations, Authoritative Pronouncements and Rulings by the Internal Revenue Service, and similar state and local laws and regulations. Many activities across the University have tax and/or regulatory implications and ramifications. It is the responsibility of every employee to understand the compliance considerations and requirements of their duties and actions.

The following sections note areas of particular tax concerns.

On this page:

Unrelated Business Income (UBI) Tax

Stanford University is exempt from income tax under Section 501(c)(3) of the Internal Revenue Code on income from activities that are substantially related to its educational and research missions, which form the basis for the University's tax exempt status.

However, if Stanford were to carry on a trade or business activity that is not substantially related to its exempt purposes, Stanford would be subject to tax on the net income of such a business activity, even though it may bring in funds to support Stanford's exempt operations. It is therefore incumbent upon Stanford employees to understand types of income-producing activities that may be "unrelated" and therefore have tax ramifications. For detailed definition of Unrelated Business Income, examples of taxable and non-taxable income, and information on University policy regulating potential UBI activities, see Unrelated Business Income Tutorial [link].

Contact the University's' Tax Compliance Department [link] with any questions regarding an activity's potential income tax ramifications.

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Non-Exempt Use of University Facilities: Academic and Business Relationships with Third Parties

Administrative Guide Memo 14 establishes reporting requirements when the University enters into academic and business relationships with independent third parties. When such a relationship involves the use of buildings or other facilities on Stanford land, it should be reported to the Stanford Management Company and the Tax Compliance Director.

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IRS Regulation: Intermediate Sanctions

These sanctions relate to the compensation of any persons having substantial influence over the affairs of Stanford, such as members for the Board of Trustees, officers having ultimate responsibility for implementing the decisions of the Board and supervising the management of the organization and those who manage finances. Specifically, Intermediate Sanctions (IRS Code 4958) prohibit the transfer of assets to a person or other entity having substantial influence over the organization, in excess of value received from that person or entity. Punitive taxes may be levied on transactions in violation of this IRS code.

Stanford managers should identify Stanford-compensated persons to whom these sanctions apply and verify with the Compensation Office in Human Resources that their compensation is being reviewed by the Compensation Committee of the Board of Trustees. Managers should also be particularly careful when dealing with outside firms in which a member of the Board of Trustees, a significant donor, an officer, or other person or entity having influence over Stanford affairs, has material financial interest. Wherever possible, financial transactions with such firms should be based upon published fee structures available to a broad range of customers.

For more detail, see Explanation of Intermediate Sanctions [link].

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Sales and Use Tax

Sales of tangible property and purchases made by Stanford are subject to California law governing sales and use tax. There are many important considerations when determining how and when sales and use tax laws and rates apply to buying and selling activities at Stanford.

For definitions, explanation of current laws and rates, and examples applicable to Stanford, see Sales and Use Tax Guide [link].

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Employee versus Independent Contractor Status

The determination of whether a worker is classified as an employee or as an independent contractor has ramifications on employment taxes withheld and paid by the employer. A worker is considered to be an "employee" if the employer for whom work is performed has the right do direct and control the worker. A worker is considered to be an "independent contractor" if the hiring entity has the right to direct the worker with respect to work objectives, but not with respect to the means or methods for accomplishing the work objectives.

The IRS defines twenty factors used in determining the classification of employee versus independent contractor.

Managers should review related Stanford guidelines and policy in the Administrative Guide Memo 35.

Specific guidance is available from the IRS at http://www.irs.gov/govt/fslg/article/0,,id=110344,00.html.

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Social Security Tax Exemptions for Students and Non-Resident Aliens

A student is exempt from social security taxes if he or she is employed by the University and is enrolled and regularly attending classes at the University.

A non-resident alien is exempt from social security taxes if he or she is...

  1. An F, J, M or Q visa holder, and
  2. Performing services related to the purpose of his or her visa.

A non-resident alien loses theis exemption when he or she becomes a resident either through the acquisition of an alien registration card (green card) from the Naturalization and Immigration Service or through the satisfaction of the Substantial Presence Test.

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Income Tax Exclusions for Scholarships and Fellowships

Scholarships and fellowships which qualify under Section 117 of the Internal Revenue Code are excludable from the recipient's gross income. To qualify for the Section 117 exclusion,

  1. An award must be a qualified scholarship (the award can only be applied to tuition and mandatory fees),
  2. The recipient must be a candidate for degree, and
  3. The award must be for the purpose of studying or conducting research at an educational organization.

For IRS discussion of these exclusions, visit http://www.irs.gov/taxtopics/tc421.html.

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