Harvard Evades Tax Disclosure

When an individual doesn't fill out a portion of an income tax form, the IRS is likely to come calling--with audits, fines, and sometimes even jail time.

But when Harvard University failed to fully answer its 1989 state tax forms, officials with the state Attorney General's office did no such thing. Instead, according to state records obtained by The Crimson, the officials speeded up plans to revise the form--and they asked Harvard to help out.

What's more, the state never insisted that Harvard correct its failure to fill out the forms completely, even after a complaint was filed with the director of the Attorney General's office division of public charities.

The state also allowed Harvard to file an incomplete form for a second year.

The information which was not reported--and which is not required on the new, less rigorous state tax forms--concerns specific details of the high risk investments that are part of the University's more than $5 billion endowment.

In interviews with The Crimson yesterday, Harvard and state officials sought to downplay any impact the University might have had on the design of the new form. Assistant Attorney General Diane Lund said Harvard's influence was minimal.

"I wouldn't say [Harvard had] any influence with respect to the details," Lund said. "They were certainly cooperative in indicating to us ways in which the form did not elicit information in the way that most institutions now collect it."

In addition, University Attorney Marianna C. Pierce denied that she ever discussed with Lund possible state enforcement of Harvard's compliance with the Massachusetts tax form for public charities, known as Form PC.

"The whole conversation was really talking about how to report financial information," Pierce said. "They certainly didn't talk about taking any enforcement action against Harvard."

But internal memorandums from the Attorney General's office, obtained under the Massachusetts Public Records Law, suggest otherwise.

The documents indicate that Lund consulted for more than a year with Richard C. Allen, director of the office of public charities, about a 1990 complaint filed with the office by former Crimson editor Joshua A. Gerstein '91.

Furthermore, they indicate that Lund informed Pierce and other Harvard officials of the complaint--which alleged that Harvard was not in compliance with state law. The University's response prompted the state to expedite its revisions of the form, the documents say.

In a July, 1990 letter to Allen, Gerstein requested that the state enforce the rules and compel Harvard to submit the data missing from the University's Form PC for fiscal 1989.

"I am writing to express my concern about the absence of certain information from Forms PC filed with your division by Harvard University and its affiliates," Gerstein wrote. "In general, Harvard does not disclose the detailed information requested."

In a handwritten internal memorandum, Allen indicated plans to "look the files over and see if we should request the information from Harvard."

But several months later, in April 1991, Allen and Lund were still discussing how to respond to Harvard's failure to submit the missing 1989 data and how to prevent the same omissions for the University's 1990 filing.

"My first recommendation is that we communicate with Harvard's administration immediately and ask them to change their reporting methods on the PC which is now due (and not yet received)," Lund wrote in an April 26, 1991 memo to Allen. "Harvard's fiscal year ends June 30th and so their PC for [fiscal 1990] should have been filed on December 15th. It does not appear to have been submitted yet, and thus it should be easy for them to include additional information in it."

In a letter the same day to E. Lyndon Tefft, Harvard's director of financial systems, Allen informed him of the problems with the University's answers and asked for a response.

"Certain questions...were not fully answered," Allen wrote, also asking that the next year's Form PC include full responses.

But in a May 28, 1991 memo to Allen, Lund wrote, "[former General Counsel Daniel Steiner '54] says that they have filed their PC for [fiscal 1990] without making any changes in the ways they have been answering our questions, since it was already in the works when our letter arrived."

"Do you sense that we are getting ourselves into a position where we might have to review our form sooner than anticipated?" Lund continued.

"I really do not have a clear understanding of why we ask for all the information we do," he said.

In a subsequent meeting between Lund and Harvard attorney Pierce, Lund once again informed Pierce of the non-compliance.

"I showed her [Boston University's] most recent PC to illustrate how it apparently is possible to answer all the questions on the form and to supply the supplementary information requested," Lund wrote in an August 9, 1991 memo to her file.

Harvard had argued that listing details of its many financial transactions would be "burdensome."

In a memo to Allen the same day, Lund wrote, "Marianna and I met yesterday afternoon and reviewed the missing portions of the Harvard PC. I told her as a general proposition we'd like the information to be right there, rather than cross-referenced or 'available on request,' and that in particular the information about certain kinds of investments needed to be furnished in more detail than they were doing."

By late October 1991, when Lund again met with Pierce and Verne O. Sedlacek, chief financial officer of Harvard Management Company (the University's in-house endowment management group), the decision to revise the forms had been virtually finalized.

"I told them that we would be considering changes in the PC form, and if this were done it would presumably solve our difficulties with their filing," Lund wrote in a memo describing the meeting.

The memo further described recommendations Pierce and Sedlacek made for the revisions of the form.

Among other suggestions, the Harvard officials noted that "they do not want to list their 'nonpublic investments' and supply a value for them," according to the memo, because they said making the information public would put them at a competitive disadvantage.

"For example, apparently they have some sort of ownership interest in a Boston hotel," Lund wrote. "I gather they'd like to sell it. Publication of the value they place on it for their internal records is not going to help them negotiate a good price."

Lund noted that she did not completely understand some of the changes the Harvard officials were suggesting.

"I'm not sure we'd know how to assess this information," Lund wrote about one proposal.

"I was at a definite disadvantage in this meeting because I did not know the reasons for the specific questions on the PC form, nor did I know what other states do," she wrote.

The revised Form PC, which went into effect this year, requests general descriptions of a non-profit's investment practices.

It does not request any financial data regarding specific investments--as the old form did--other than a listing of the organization's total assets and liabilities, and the compensation of its top officials and consultants.

Critics of the new form, like Gerstein, allege that the state yielded to the wishes of the organizations it is supposed to oversee, failed in its enforcement and oversight responsibilities, and reduced the amount of information available to the public and watchdog groups.

But Lund yesterday defended the changes in the simplified form, saying it is easier to file and understand and does not unnecessarily request information already required by federal tax forms.

"The information that we're interested in is basically whether a charity is solvent, whether its assets exceed its liabilities, and whether its investment practices are consistent with fiduciary principles," Lund said. "We don't need to micromanage and we certainly don't want to.

"I wouldn't say [Harvard had] any influence with respect to the details," Lund said. "They were certainly cooperative in indicating to us ways in which the form did not elicit information in the way that most institutions now collect it."

In addition, University Attorney Marianna C. Pierce denied that she ever discussed with Lund possible state enforcement of Harvard's compliance with the Massachusetts tax form for public charities, known as Form PC.

"The whole conversation was really talking about how to report financial information," Pierce said. "They certainly didn't talk about taking any enforcement action against Harvard."

But internal memorandums from the Attorney General's office, obtained under the Massachusetts Public Records Law, suggest otherwise.

The documents indicate that Lund consulted for more than a year with Richard C. Allen, director of the office of public charities, about a 1990 complaint filed with the office by former Crimson editor Joshua A. Gerstein '91.

Furthermore, they indicate that Lund informed Pierce and other Harvard officials of the complaint--which alleged that Harvard was not in compliance with state law. The University's response prompted the state to expedite its revisions of the form, the documents say.

In a July, 1990 letter to Allen, Gerstein requested that the state enforce the rules and compel Harvard to submit the data missing from the University's Form PC for fiscal 1989.

"I am writing to express my concern about the absence of certain information from Forms PC filed with your division by Harvard University and its affiliates," Gerstein wrote. "In general, Harvard does not disclose the detailed information requested."

In a handwritten internal memorandum, Allen indicated plans to "look the files over and see if we should request the information from Harvard."

But several months later, in April 1991, Allen and Lund were still discussing how to respond to Harvard's failure to submit the missing 1989 data and how to prevent the same omissions for the University's 1990 filing.

"My first recommendation is that we communicate with Harvard's administration immediately and ask them to change their reporting methods on the PC which is now due (and not yet received)," Lund wrote in an April 26, 1991 memo to Allen. "Harvard's fiscal year ends June 30th and so their PC for [fiscal 1990] should have been filed on December 15th. It does not appear to have been submitted yet, and thus it should be easy for them to include additional information in it."

In a letter the same day to E. Lyndon Tefft, Harvard's director of financial systems, Allen informed him of the problems with the University's answers and asked for a response.

"Certain questions...were not fully answered," Allen wrote, also asking that the next year's Form PC include full responses.

But in a May 28, 1991 memo to Allen, Lund wrote, "[former General Counsel Daniel Steiner '54] says that they have filed their PC for [fiscal 1990] without making any changes in the ways they have been answering our questions, since it was already in the works when our letter arrived."

"Do you sense that we are getting ourselves into a position where we might have to review our form sooner than anticipated?" Lund continued.

"I really do not have a clear understanding of why we ask for all the information we do," he said.

In a subsequent meeting between Lund and Harvard attorney Pierce, Lund once again informed Pierce of the non-compliance.

"I showed her [Boston University's] most recent PC to illustrate how it apparently is possible to answer all the questions on the form and to supply the supplementary information requested," Lund wrote in an August 9, 1991 memo to her file.

Harvard had argued that listing details of its many financial transactions would be "burdensome."

In a memo to Allen the same day, Lund wrote, "Marianna and I met yesterday afternoon and reviewed the missing portions of the Harvard PC. I told her as a general proposition we'd like the information to be right there, rather than cross-referenced or 'available on request,' and that in particular the information about certain kinds of investments needed to be furnished in more detail than they were doing."

By late October 1991, when Lund again met with Pierce and Verne O. Sedlacek, chief financial officer of Harvard Management Company (the University's in-house endowment management group), the decision to revise the forms had been virtually finalized.

"I told them that we would be considering changes in the PC form, and if this were done it would presumably solve our difficulties with their filing," Lund wrote in a memo describing the meeting.

The memo further described recommendations Pierce and Sedlacek made for the revisions of the form.

Among other suggestions, the Harvard officials noted that "they do not want to list their 'nonpublic investments' and supply a value for them," according to the memo, because they said making the information public would put them at a competitive disadvantage.

"For example, apparently they have some sort of ownership interest in a Boston hotel," Lund wrote. "I gather they'd like to sell it. Publication of the value they place on it for their internal records is not going to help them negotiate a good price."

Lund noted that she did not completely understand some of the changes the Harvard officials were suggesting.

"I'm not sure we'd know how to assess this information," Lund wrote about one proposal.

"I was at a definite disadvantage in this meeting because I did not know the reasons for the specific questions on the PC form, nor did I know what other states do," she wrote.

The revised Form PC, which went into effect this year, requests general descriptions of a non-profit's investment practices.

It does not request any financial data regarding specific investments--as the old form did--other than a listing of the organization's total assets and liabilities, and the compensation of its top officials and consultants.

Critics of the new form, like Gerstein, allege that the state yielded to the wishes of the organizations it is supposed to oversee, failed in its enforcement and oversight responsibilities, and reduced the amount of information available to the public and watchdog groups.

But Lund yesterday defended the changes in the simplified form, saying it is easier to file and understand and does not unnecessarily request information already required by federal tax forms.

"The information that we're interested in is basically whether a charity is solvent, whether its assets exceed its liabilities, and whether its investment practices are consistent with fiduciary principles," Lund said. "We don't need to micromanage and we certainly don't want to.