format_list_bulleted Topic Overview

Tax Compliance at Stanford

Stanford University recognizes the privileges and responsibilities conferred upon it through its federal and state income tax exemptions, its county property tax exemption, and its ability to secure tax-exempt debt through the State of California. Stanford's core missions of education, healthcare, and research are strongly influenced by the support and confidence of taxpayers in general and by the university's supporters. To this end, Stanford establishes high standards of compliance with respect to applicable tax regulations as outlined on this page.

Disclaimer: Stanford University does not offer personal tax advice. Nothing on this website shall be construed as the offering of tax advice. Stanford recommends seeking professional tax counsel where necessary.

Stanford University is exempt from federal income tax as an educational institution under section 501(c)(3) of the Internal Revenue Code, and from California state income tax as an educational institution under the California Revenue and Taxation Code (R&TC) Section 23701d. Refer to affirmation letters below:

When the university regularly engages in activities or businesses that are not substantially related to its tax-exempt purpose of education, research, and health care, the related income is subject to unrelated business income (UBI) tax. The purpose of this UBI requirement is to ensure that tax-exempt organizations are not using their tax-exempt status to unfairly compete with for-profit businesses and to prevent them from conducting activities that are beyond the intended scope of their tax exemption. See Resource: Unrelated Business Income.

The tax-exempt status is a privilege that has both benefits and stringent requirements associated with it. Note that this exemption is limited to the United States, and does not extend to the university’s activities in other countries which may be governed by local laws.

On an annual basis, the Tax Department within Financial Management Services (FMS) Financial Compliance & Operations prepares and files with the appropriate governing agencies:

  • Federal Form 990, Return of Organization Exempt from Income Tax
  • Franchise Tax Board Form 199, California Exempt Organization Annual Information Statement or Return
  • Federal Form 990-T, Exempt Organization Business Income Tax Return
  • Franchise Tax Board Form 109, California Exempt Organization Business Income Tax Return

The net investment income excise tax was introduced by the Tax Cuts and Jobs Act of 2017 and applies to investment income (dividends, interest, rents, etc.) and realized gains (including gains on appreciated gift securities). The tax became effective September 1, 2018.

Merged Pool Shareholders

To equitably allocate the tax on investment income of the Merged Pool (MP), Stanford accrues a nominal amount per MP share each month. This rate is set on an annual basis in January, based on current experience and analysis of estimated tax liability. MP shareholders don’t need to take any action or plan any differently than they otherwise would. The current accrual rate is $0.025 per share, which will continue through December 2024.

Non-Merged Pool Funds

Funds generating taxable investment income outside of the Merged Pool (non-MP rental properties, SDF funds etc.) will be charged their respective portion of the tax. Fund owners should expect to see these charges in the fund statement in July each year, which is when final tax calculations are complete.

The Tax Department within Financial Management Services (FMS) Financial Compliance & Operations completes and makes available:

  • IRS Form W-9, Request for Taxpayer Identification Number (TIN) and Certification
  • CA Form 590, Withholding Exemption Certificate

In accordance with IRS regulations, Stanford makes its most recent Tax Returns available for public inspection. A copy of Stanford University’s Form 990 (Information Return) or Form 990-T (Business Income Tax Return), can be found on the Bondholder Information website.

Under California law, the university qualifies for property tax exemption on much of its land as well as academic buildings and equipment in Santa Clara and nearby counties. One of the basic requirements for the property tax exemption is that the property must be used exclusively for educational purposes by the university. Activities that are incidental to and reasonably necessary for the accomplishment of educational purpose may also qualify for the exemption (e.g., student housing or a university-run cafeteria), but must be evaluated in advance by the Tax Department.

However, university property that is leased to for-profit vendors does not qualify for exemption and property used by the university for commercial purposes does not qualify for exemption. FMS and Land, Buildings, and Real Estate (LBRE) work closely with outside advisors to navigate this complex set of tax rules.

As a section 501(c)(3) organization, the university issues tax-exempt debt through the California Educational Facilities Authority (CEFA). Tax-exempt debt can only be used to finance buildings and equipment that support the university’s tax-exempt mission and meet certain State regulations.

Tax-exempt debt is associated with certain requirements, including tracking and demonstrating that the bond proceeds are used for qualified purposes that support the university’s mission and that the university has sufficient resources to complete the project, including gifts and university reserves.

Annually, the university is required to provide annual certification to the state, IRS and, if necessary, public postings, that the university is abiding by terms of the bond documents. Each year, as part of this process, representatives from schools and units complete a Debt Covenant Attestation where they certify that their units are in compliance with bond covenants, including that there is no private use and no religious use in facilities financed with tax-exempt bonds. See Compliance Guidelines for Tax-Exempt Debt.

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. Tax compliance is the responsibility of every university employee whose efforts may affect such compliance. The university shall cooperate with agents of appropriate authorities in inquiries and audits. The university's cooperation with and responses to such agencies shall be coordinated by the FMS Tax Department or other assigned university units to facilitate timely, accurate and complete responses. All employees are to be truthful in their dealings with taxing authorities. It is incumbent upon university managers to assure that employees are properly trained and supervised in any activities that may impact university tax compliance. Failure to comply with the IRS and state and local regulations may result in penalties, reputational risk to the university, loss of federal funding, and potentially jeopardize our tax-exempt status along with the related benefits.

The FMS Financial Compliance & Operations Tax Department is responsible for university tax compliance, which is one of the areas under the Institutional Compliance Program at Stanford. The Director of Internal Audit and Institutional Compliance has oversight responsibilities for the Institutional Compliance Program. The FMS Tax Department is the operating unit charged with continuously monitoring and complying with tax laws and regulations.

The Director of Tax Compliance partners with the professionals in the General Counsel's Office, the Internal Audit Department, a network of professional tax experts and the various individuals and operating units throughout the university that are charged with tax compliance responsibilities.

Enforcement and Corrective Action

Where applicable, tax compliance efforts should be an aspect in an individual's job performance, evaluation. Managers should provide the necessary training to those individuals charged with tax compliance responsibilities. Managers are responsible for ensuring tax compliance and helping to identify areas for remediation, where improvement is warranted. If areas of tax compliance are of particular concern, managers should work with the Director of Tax Compliance on a plan of remediation, including a time frame for re-evaluation. Deliberate noncompliance with tax laws may be considered a cause for immediate termination.

Anonymous Reporting of Non-Compliance

Employees who believe there may be deviations from tax compliance procedures are encouraged to report such concerns to their immediate supervisors. If the employee determines, for whatever reason, that such reporting is not feasible, the employee may anonymously report his/her concerns to any of the following individuals: Director of Tax Compliance, Regional Tax Compliance Officer, Director of Internal Audit and Institutional Compliance, University General Counsel, Cognizant Associate Dean or Director. To the extent possible, the reporting employee's identity will be held confidential. Consistent with university policy, an employee making such claims will not be subject to retaliation.

Tax compliance is an important university responsibility. Accordingly, budget units should establish appropriate budgets to fund necessary compliance and control functions and training. Budgets should also allow for external professional advice where the need extends beyond the support available from the FMS Tax Department and other university units.
Each school or regional unit shall appoint a Regional Tax Compliance Officer (RTCO). This person will:

  • Have an intimate understanding of the activities of the business unit
  • Understand and comply with the university’s policies and processes related to our tax-exempt status
  • Monitor their unit’s business activity for compliance with the tax-exempt requirements
  • Assist others in that unit with tax questions to the extent possible
  • Where appropriate, refer questions to FMS Financial Compliance & Operations
  • Disseminate necessary information on new tax rules
  • Provide information to FMS Financial Compliance & Operations on any new activities of the unit that may need to be examined for tax compliance purposes. Each RTCO will receive initial training from FMS Financial Compliance & Operations and then meet on a periodic basis.

The Director of Tax Compliance will periodically update senior university management on the status of tax compliance for the university. The Director of Tax Compliance will coordinate a cycle of periodic reviews of various areas of compliance, seeking to partner with external professionals, Internal Audit staff and external compliance officials in identifying areas where compliance may be improved.

The Senior Director of Financial Compliance and Operations and the Vice President for Business Affairs and Chief Financial Officer will report to the Audit and Compliance Committee of the Board of Trustees from time to time on tax compliance matters.

Last Updated: Feb 28, 2024