Presidents of educational systems often accept free or reduced-rate housing when they accept their position. Located on or near campus, the residences serve as a fringe benefit to the leadership role. In most cases, the value of the home is not included as part of the employee’s compensation package.
Section 119 of the Internal Revenue Code (IRC) allows university- or college-provided housing to be an income-tax-free fringe benefit for employees if the arrangement passes a three-part test. Recent movement by the IRS, however, suggests the three-part test may be more difficult to meet than you may think.
The IRS recently conducted an audit of Ohio University and found that the housing provided to its president did not qualify for tax-exemption. The IRS said the value of Roderick McDavis’s 7,000 square foot home, located on Ohio University’s campus, should be included as part of his eligible compensation and subject to income and payroll taxes. It is still unknown which part of the three-part test the university failed.