Restrictions on university tax inquiries and examinations

(a)

In general

Subchapter A of chapter 78 of the Internal Revenue Code of 1986 is amended— (1)by redesignating section 7613 as section 7614, and (2)by inserting after section 7612 the following new section:

7613.

Restrictions on university tax inquiries and examinations

(a)

Restrictions on inquiries

(1)

In general

The Secretary may begin a university tax inquiry only if the requirements of paragraphs (2) and (3) have been met. (2)

Reasonable belief requirement

The requirement of this paragraph is met with respect to any university tax inquiry if— (A) in the case of such inquiry serving as a basis for determining whether any income derived by the university is excludable from taxation under section 115, an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that any such income may not be so excluded, (B)in the case of such inquiry serving as a basis for determining whether the university is exempt from taxation under section 501(a), an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that such university may not be so exempt, and (C) in the case of such inquiry serving as a basis for determining whether the university is carrying on an unrelated trade or business (within the meaning of section 513) or otherwise engaged in activities which may be subject to taxation under this title, an appropriate high-level Treasury official reasonably believes (on the basis of facts and circumstances recorded in writing) that such university may be carrying on such an unrelated trade or business or engaged in such activities. (3)

Inquiry notice requirement

(A)

In general

The requirement of this paragraph is met with respect to any university tax inquiry if, before beginning such inquiry, the Secretary provides written notice to the university of the beginning of such inquiry. (B)

Contents of inquiry notice

The notice required by this paragraph shall include— (i) an explanation of— (I) the concerns which gave rise to such inquiry, and (II) the general subject matter of such inquiry, and (ii) a general explanation of the applicable— (I) administrative and constitutional provisions with respect to such inquiry (including the right to a conference with the Secretary before any examination of university business records or university activities), and (II) provisions of this title which authorize such inquiry or which may be otherwise involved in such inquiry. (b)

Restrictions on examinations

(1)

In general

(A)

Preconditions

The Secretary may begin a university tax examination only— (i)following the beginning of a university tax inquiry under subsection (a) into the university to be examined, (ii)subject to subparagraph (B), and (iii)if the requirement of paragraph (2) has been met. (B)

Business records and activities

A university tax examination may be made only— (i)in the case of university business records, to the extent necessary to determine the liability for, and the amount of, any taxation imposed by this title, and (ii)in the case of university activities, to the extent necessary to determine whether a university claiming— (I)any income to be excludable from taxation under section 115 is so excludable, or (II)to be exempt from taxation under section 501(a) is so exempt. (2)

Notice of examination; opportunity for conference

The requirement of this paragraph is met with respect to any university tax examination if— (A) at least 15 days before the beginning of such examination, the Secretary provides the notice described in paragraph (3) to both the university and the appropriate Division Counsel of the Internal Revenue Service, and (B) the university has a reasonable time to participate in a conference described in paragraph (3)(A)(iii), but only if the university requests such a conference before the beginning of the examination. (3)

Contents of examination notice, etc

(A)

In general

The notice described in this paragraph is a written notice which includes— (i) a copy of the university tax inquiry notice provided to the university under subsection (a), (ii) a description of the university business records and university activities which the Secretary seeks to examine, (iii) an offer to have a conference between the university and the Secretary in order to discuss, and attempt to resolve, concerns relating to such examination, and (iv) a copy of all documents which were collected or prepared by the Internal Revenue Service for use in such examination and the disclosure of which is required by the Freedom of Information Act. (B)

Earliest day examination notice may be provided

The examination notice described in this paragraph shall not be provided to the university before the 15th day after the date on which the university tax inquiry notice was provided to the university under subsection (a). (C)

Opinion of Division Counsel with respect to examination

The Division Counsel of the Internal Revenue Service who receives an examination notice under paragraph (2)(A) may, within 15 days after such notice is provided, submit to the Secretary an advisory objection to the examination. (4)

Examination of business records and activities not specified in notice

Within the course of a university tax examination which (at the time the examination begins) satisfies the preconditions of paragraph (1)(A), the Secretary may examine any university business records or university activities which were not specified in the examination notice to the extent such examination meets the requirement of clause (i) or (ii) of paragraph (1)(B) (whichever applies). (c)

Limitation on period of inquiries and examinations

(1)

Inquiries and examinations must be completed within 2 years

(A)

In general

The Secretary shall complete any university tax inquiry or examination (and make a final determination with respect thereto) not later than the date which is 2 years after the examination notice date. (B)

Inquiries not followed by examinations

In the case of a university tax inquiry with respect to which there is no examination notice under subsection (b), the Secretary shall complete such inquiry (and make a final determination with respect thereto) not later than the date which is 90 days after the inquiry notice date. (2)

Suspension of 2-year period

The running of the 2-year period described in paragraph (1)(A) and the 90-day period in paragraph (1)(B) shall be suspended— (A) for any period during which— (i) a judicial proceeding brought by the university against the Secretary with respect to the university tax inquiry or examination is pending or being appealed, (ii) a judicial proceeding brought by the Secretary against the university (or any official thereof) to compel compliance with any reasonable request of the Secretary in a university tax examination for examination of university business records or university activities is pending or being appealed, or (iii) the Secretary is unable to take actions with respect to the university tax inquiry or examination by reason of an order issued in any judicial proceeding brought under section 7609, (B) for any period in excess of 20 days (but not in excess of 6 months) in which the university or its agents fail to comply with any reasonable request of the Secretary for university business records or other information, or (C) for any period mutually agreed upon by the Secretary and the university. (d)

Limitations on determinations by Secretary, etc

(1)

In general

The Secretary may— (A) determine that— (i)any income derived by a university is not excludable from taxation under section 115, or (ii)a university is not exempt from taxation under section 501(a), (B)send a notice of deficiency of any tax involved in a university tax examination, or (C)in the case of any tax with respect to which subchapter B of chapter 63 does not apply, assess any underpayment of such tax involved in a university tax examination,

only if the appropriate Division Counsel of the Internal Revenue Service determines in writing that there has been substantial compliance with the requirements of this section and approves in writing of such inclusion of income, revocation of status, notice of deficiency, or assessment.

(2)

Limitations on period of assessment

(A)

Inclusion of income and revocation of tax-exempt status

(i)

3-year statute of limitations generally

In the case of any university tax examination with respect to— (I)the inclusion under section 115 of any income previously excluded from taxation under such section, or (II)the revocation of tax-exempt status under section 501(a),

any tax imposed by chapter 1 (other than section 511) may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, only for the 3 most recent taxable years ending before the examination notice date.

(ii)

6-year statute of limitations in certain cases

If the university— (I)derives no income which is excludable from taxation under section 115, and (II)is not exempt from taxation under section 501(a),

for any of the 3 taxable years described in clause (i), clause (i) shall be applied by substituting 6 most recent taxable years for 3 most recent taxable years.

(B)

Unrelated business tax

In the case of any university tax examination with respect to the tax imposed by section 511, such tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, only with respect to the 6 most recent taxable years ending before the examination notice date. (C)

Exception where shorter statute of limitations otherwise applicable

Subparagraphs (A) and (B) shall not be construed to increase the period otherwise applicable under subchapter A of chapter 66. (e)

Information not collected in substantial compliance with procedures To stay summons proceeding

(1)

In general

If there has not been substantial compliance with— (A) the notice requirements of subsection (a) or (b), (B) the conference requirement described in subsection (b)(3)(A)(iii), or (C) the approval requirement of subsection (d)(1) (if applicable),

with respect to any university tax inquiry or examination, any proceeding to compel compliance with any summons with respect to such inquiry or examination shall be stayed until the court finds that all practicable steps to correct the noncompliance have been taken. The period applicable under paragraph (1) of subsection (c) shall not be suspended during the period of any stay under the preceding sentence.

(2)

Remedy to be exclusive

No suit may be maintained, and no defense may be raised in any proceeding (other than as provided in paragraph (1)), by reason of any noncompliance by the Secretary with the requirements of this section. (f)

Limitations on additional inquiries and examinations

(1)

In general

If any university tax inquiry or examination with respect to any university is completed and does not result in— (A) an inclusion of income, revocation of status, notice of deficiency, or assessment described in subsection (d)(1), or (B) a request by the Secretary for any significant change in the operational practices of the university (including the adequacy of accounting practices),

no other university tax inquiry or examination may begin with respect to such university during the applicable 5-year period unless such inquiry or examination is approved in writing by the Secretary or does not involve the same or similar issues involved in the preceding inquiry or examination. For purposes of the preceding sentence, an inquiry or examination shall be treated as completed not later than the expiration of the applicable period under paragraph (1) of subsection (c).

(2)

Applicable 5-year period

For purposes of paragraph (1), the term applicable 5-year period means the 5-year period beginning on the date the notice taken into account for purposes of subsection (c)(1) was provided. For purposes of the preceding sentence, the rules of subsection (c)(2) shall apply. (g)

Treatment of final report of revenue agent

Any final report of an agent of the Internal Revenue Service shall be treated as a determination of the Secretary under paragraph (1) of section 7428(a), and any university receiving such a report shall be treated for purposes of sections 7428 and 7430 as having exhausted the administrative remedies available to it. (h)

Reporting requirement

Not later than 60 days after the beginning of any university tax inquiry or examination, the Secretary shall transmit to the appropriate congressional committees a confidential report that includes— (1)the identity of the university subject to the tax inquiry or examination, (2)an attestation that the requirements of subsection (a)(1) or (b)(1)(A) (whichever applies) have been met, (3)a copy of the university tax inquiry notice or the university tax examination notice provided to the university under subsection (a) or (b), respectively (whichever applies), and (4)a copy of all finalized and officially proposed regulations relating to the interpretation and implementation of this section. (i)

Definitions

For purposes of this section— (1)

University

The term university means— (A)any institution of higher education (as defined under section 102 of the Higher Education Act of 1965), and (B)any related organization (as defined under section 4968(g)(2)) of such an institution. (2)

University tax inquiry

The term university tax inquiry means any inquiry into a university (other than an examination) to serve as a basis for determining whether— (A) any income derived by the university is excludable from taxation under section 115, (B)the university is exempt from taxation under section 501(a), or (C) the university is carrying on an unrelated trade or business (within the meaning of section 513) or otherwise engaged in activities which may be subject to taxation under this title. (3)

University tax examination

The term university tax examination means, for purposes of making a determination described in paragraph (2), any examination of— (A) university business records at the request of the Internal Revenue Service, or (B) university activities. (4)

University business records

(A)

In general

The term university business records means all corporate and financial records regularly kept by a university. (B)

Exception

Such term shall not include records acquired— (i) pursuant to a summons to which section 7609 applies, or (ii) from any governmental agency. (5)

University activities

The term university activities— (A)means any activities relating to the academic or bureaucratic operation of the university, including— (i)any affiliations or ideological positions of, or advocacy by, the university, and (ii)the curricular or scholastic content that the university provides to its students, but (B)does not include university business records. (6)

Inquiry notice date

The term inquiry notice date means the date the notice with respect to a university tax inquiry is provided under subsection (a) to the university. (7)

Examination notice date

The term examination notice date means the date the notice with respect to a university tax examination is provided under subsection (b) to the university. (8)

Appropriate high-level Treasury official

The term appropriate high-level Treasury official means the Secretary of the Treasury or any delegate of the Secretary whose rank is no lower than that of a principal Internal Revenue officer for an internal revenue district. (9)

Appropriate congressional committees

The term appropriate congressional committees means— (A)the Committee on Ways and Means of the House of Representatives, and (B)the Committee on Finance of the Senate. (j)

Section not To apply to criminal investigations, etc

This section shall not apply to— (1) any criminal investigation, (2) any inquiry or examination relating to the tax liability of any person other than a university, (3) any assessment under section 6851, 6852, or 6861, (4) any willful attempt to defeat or evade any tax imposed by this title, or (5) any knowing failure to file a return of tax imposed by this title.

(b)

Conforming amendments

(1)The table of sections for subchapter A of chapter 78 of such Code is amended by striking the item relating to section 7613 and inserting the following new items:

Sec. 7613. Restrictions on university tax inquiries and examinations.

Sec. 7614. Cross references.

(2)Section 7605(c) of such Code is amended to read as follows:

(c)

Cross references

(1)

Restrictions on church tax inquiries and examinations

For provisions restricting church tax inquiries and examinations, see section 7611. (2)

Restrictions on university tax inquiries and examinations

For provisions restricting university tax inquiries and examinations, see section 7613.

(c)

Effective date

The amendments made by this section shall apply with respect to inquiries and examinations beginning after the date of the enactment of this Act.