IRS To Audit Harvard as Part of Non-Profit Probe

Harvard will be audited by the Internal Revenue Service as part of the government's efforts to review practices at non-profit organizations that take advantage of tax exemptions.

The University is one of 40 colleges under examination by the IRS, which will conduct audits during the coming year after reviewing questionnaires probing related business activities and compensation at colleges around the country. IRS officials have said, according to media reports, that the questionnaires would trigger audits, but did not specify what exactly would cause the IRS to launch an audit.

Senator Charles E. Grassley, an Iowa Republican, has voiced loud criticism against tax-exempt organizations, including both universities and hospitals. In the past, Grassley has argued that universities receiving government funding should keep their operating costs low and dedicate more funds toward financial aid in lean economic times.

Grassley has been particularly critical of Harvard Medical School and has clashed with the school in recent years over faculty and physician ties to the pharmaceutical industry.

According to the IRS website, the probe will include an inspection of executive compensation. Harvard has come under fire in recent years for compensation practices at Harvard Management Company, the organization that manages the University's $26 billion endowment.

In 2003, alumni protested what they viewed as excessive compensation in a series of letters to then-President Lawrence H. Summers. Faced with unwelcome media attention, the HMC board voted in 2004 to impose lower pay ceilings for fund managers, and HMC President Jack R. Meyer, who oversaw the endowment's growth from $4.7 billion to $26 billion, left the organization the next year to start his own hedge fund.

Additional concerns over HMC's practices surfaced after Meyer's departure when one former employee called Harvard's use of off-shore accounts into question.

In interviews with The Crimson last year, Steven M. Rose, a former HMC tax director, questioned whether a non-profit such as Harvard ought to be utilizing investment vehicles such as offshore companies to boost financial returns. Rose also said that during the time of his employment at Harvard in 2001, HMC operated with a profit-driven mentality that he considered at odds with the University's educational mission.

When asked about Rose's concerns last year, University spokesman John D. Longbrake wrote in an e-mailed statement that Rose’s complaints were “the subject of a thorough review by an external expert” that ultimately concluded they were “without merit.”

News of the impending audit comes on the heels of the University's decision to sell $480 million of debt to finance construction projects at the Law School and other operating costs.

—Staff writer Elias J. Groll can be reached at egroll@fas.harvard.edu.

This article has been revised to reflect the following clarification:

CLARIFICATION: January 13, 2009

An earlier version of the Jan. 13 news article "IRS To Audit Harvard as Part of Non-Profit Probe" stated that Steven M. Rose, former tax director of Harvard Management Company, raised questions last year regarding HMC's investment practices and "profit-driven mentality." To clarify, Rose voiced such concerns to a Crimson reporter last year, but the concerns focused on HMC's practices at the time of his employment in 2001. University spokesman John D. Longbrake's statement has been added to further clarify the timing of Rose's concerns and the University's response.