Fund Administration and Use Handbook 5.0 Disbursements

Fund Administration and Use

Handbook

5.0 Disbursements

5.1 General

All disbursements from KU Endowment funds must: (1) provide a direct benefit to the University of Kansas, within a University sanctioned program; (2) be used in compliance within acceptable limitations of the donor; (3) be properly reported for tax purposes, as appropriate; and (4) follow any applicable University policies. These issues must be considered when completing and paying every check request or transferring funds between KU Endowment accounts. KU Endowment forms (Check Request, Check Request for Student Award or Prize, Contractual Services) will help to comply with these requirements, and must be submitted whenever a disbursement is requested. If you relate more easily to flow charts than written words, many of the tax issues for disbursements from KU Endowment resources are summarized in the flow charts showing overviews of the Payment Process, Payments to Students, Payments to University Employees and Payments to Independent Contractors.

Each field requested, question asked, and statement made on the check request forms is important, and must be completed before processing by KU Endowment. It is vital for the Fund Account Representatives to understand that their signatures serve as a certification of the propriety of the requested expenditure in furthering the mission of the University of Kansas to the best of their knowledge and belief.

Once a check request is received at KU Endowment, it goes through a review process before the request can be paid. See a flow chart of the KU Endowment Check Request process.

The concept of an “accountable plan” was developed by IRS to set forth rules which define legitimate, non-taxable business expense reimbursements. The components of a qualified accountable plan require all expenditures to: 1) have a bona fide business purpose; 2) be properly substantiated; and 3) be accounted for on a timely basis. These three elements are explained further in the following paragraphs, and they are a consistent theme throughout the rest of section 5 of this Handbook.

IRS requires that KU Endowment payments to or on behalf of KU employees which do not qualify as accountable plan payments be included in the employee’s W-2 wages. These non-accountable plan payments are essentially treated like compensation for services. Payments like these, which are included in an individual’s W-2 income, will usually reduce the recipient’s next paycheck by the employee’s portion of employment taxes which are related to the “compensation” already received from the KU Endowment account. Additionally, the related KU Endowment account may incur another charge for the related employer portion of employment taxes. Obviously, complying with IRS accountable plan rules is best for the individual, the University, and KU Endowment.

KU Endowment’s experience has been that the IRS may view a disbursement as providing a personal benefit if there is any doubt concerning business purpose. The importance of properly documenting the business purpose of the expenditure as proof of its propriety cannot be overstated. Even though in some cases the business purpose may be implied, it must be specifically documented to pass IRS scrutiny. This will be a continuing theme throughout the rest of section 5.

Documenting the business purpose is usually not too burdensome (except for foreign or lengthy travel – see section 5.7). For example, the purchase of computer software should include a statement that it is used solely for University purposes, even though that may be implied by an invoice showing delivery to the University office (see Sample Equipment Statement). Examples of documentation for other commonly encountered types of expenses are included in the following sections of this Handbook. The index is also provided to help locate the discussion about these specific kinds of expenses.

KU Endowment utilizes original itemized receipts or legible copies thereof to substantiate expenses. The receipt must describe the actual items purchased.

Credit card statements and credit card signature receipts that show only the total of the items purchased are insufficiently detailed to provide adequate supporting documentation for a reimbursement request. Receipts which itemize credit card purchases are obtainable from the vendor, and should always be attached to the check request.

In cases where a ticketless system is used for air travel or other forms of travel, a receipt or confirmation statement which states the origination and destination points, cost and dates of the travel must be obtained from the carrier or travel agent in order to receive reimbursement.

Obviously, reimbursement for business use of a personal car at the standard mileage rate and incidental tipping are exceptions to the receipt requirement.

It is KU Endowment’s position that reimbursing actual expenses incurred by employees conducting business activities is fairest to the employee. Consequently, KU Endowment does not reimburse on a per diem basis. Actual and reasonable expenses will be reimbursed, assuming sufficient receipt documentation is provided.

The IRS generally allows persons to reconstruct certain records when the original documentation was destroyed or lost through circumstances beyond the taxpayer’s control. Examples of these situations are destruction by fire, flood, or earthquake. However, loss of records in the course of moving between offices or residences is specifically not the type of casualty that will excuse failure to substantiate expenses. Clearly, the IRS considers the substantiation of expenses to be extremely important. There may be cases where KU Endowment will reimburse an employee for bona fide business expenses when receipts have been lost, but the reimbursement will generally be included as taxable compensation through the KU payroll office.

To be considered as being accounted for on a timely basis, the request for reimbursement of expenses or submission of receipts to support an advance must be provided to KU Endowment within 90 days from the date in which the expense was incurred or the travel concluded.

KU Endowment is specifically exempt from payment of sales tax on items or services purchased in Kansas and Missouri which are related to KU Endowment’s mission to support the University of Kansas. Purchases for University use from University-owned agency funds are also exempt from sales tax. Purchases made from non-university agency funds (assets of a related entity) are subject to sales tax if similar purchases which are paid directly by the other entity are taxable. (For more on agency funds, see section 4.2.)

Other states generally will not recognize KU Endowment’s Kansas and Missouri sales tax exemptions, so you should resolve with the vendor or service provider when you are negotiating your purchases whether sales tax charges should apply. KU Endowment check requests to pay for invoices which include unnecessary sales tax charges should be drawn for the amount of the item or services purchased only, excluding the sales tax. You should also include a statement in the comment section of the check request form to ensure that KU Endowment understands your intention to reduce the invoice by the sales tax amount. KU Endowment staff will then provide a copy of KU Endowment’s exemption certificate to the vendor or service provider, as appropriate.

Although food and lodging expenses incurred while traveling to further the University’s mission may technically also be exempt from sales tax, it is impractical to provide the appropriate state exemption certificate for each traveler to present to the service provider in these situations. When you are planning for extended hotel stays or large banquet situations, etc., where the sales tax charge may be significant, KU Endowment can easily provide a copy of its exemption certificate, depending on the state, directly to the provider prior to the activity, to eliminate sales tax charges. Please contact KU Endowment’s Account Services staff (see section 7.0) in these situations.

The IRS requires KU Endowment to report taxable payments with the payee’s social security number or other tax identification number (SSN/TIN). Because of the sensitivity of this information, KU Endowment has reduced the need to obtain the entire SSN/TIN to only first-time payments to persons/entities other than KU employees.

When a payment is being requested to or for the benefit of a University employee, please only complete the KU Employee ID field of the KU Endowment Check Request (NOT the Social Security Number field.)

When requesting payments for persons who are not KU employees, a SSN is only required for the first payment to these persons. That information may be provided by completing the SSN/TIN field on the Check Request. Subsequent requests to pay the same non-employee person need only provide the last four digits of the SSN/TIN on the check request form. This will make sure that we have properly identified the person you wish to pay, and help to protect their personal information.

A TIN must be provided when paying a business vendor for the first time, as well. You may determine whether a vendor in question has been paid previously by selecting the Vendor Payments report in the G/L Transaction folder of the KU Endowment One Solution financial reporting system. Again, only the last four digits of the TIN is required for subsequent payments to the subject vendor.

KU Endowment is serious about protecting personal information and follows state-of-the-art procedures to address this issue. Background checks are conducted for all new employees, and all employees are required to execute a statement of confidentiality of information. KU Endowment’s software systems display SSN/TIN information to only a limited number of employees who maintain or utilize the information in their job duties, and the information appears on no reports accessible to anyone other than authorized staff members. SSN/TIN data is stored in an encrypted form in the KU Endowment database wherever application software permits such encryption, and, like all KU Endowment data, is housed in a secure computing environment. In accordance with KU Endowment’s Privacy Policy, we do not share acquired SSN/TIN information with other entities except through required governmental reporting.

KU Endowment expects Fund Account Representatives to comply with relevant University policies and procedures when submitting disbursement requests, as pertinent to the nature of the disbursement. KU Endowment will endeavor to ensure such requests adhere to the policies when known, but it is the Fund Account Representative’s responsibility, as a University employee, to comply with University requirements.

The University requires that all research expenditures from KU Endowment accounts be tracked for reporting purposes. Please identify on the KU Endowment Check Request whether the expenditure is related to research activities.

Further, because of potential health and other sensitive issues related to certain activities, the fund account representative signing the check request must identify whether the expenditure will involve human subjects; vertebrate animals; environmental, health or safety risks; conflicts of interest; export controls; intellectual property; or subcontracting work outside of the University. Please see the KU Endowment Check Request Addendum for Research-Related Payments for further explanation and examples of these sensitive research issues. Payments for these activities ultimately must be processed through the KU Center for Research (KUCR) or the KUMC Research Institute (RI), as appropriate.

On the Lawrence campus, payments for these sensitive uses should be directed to KUCR and then may be reimbursed to KUCR by the underwriting KU Endowment research account. (see section 5.13 for details on this procedure.) On the Medical Center campus, the KU Endowment Check Request should be directed to KU Endowment, which will then be forwarded to the RI along with sufficient KU Endowment funds for the RI to pay the vendor.

If the KU Endowment research account is used the majority of the time for these sensitive uses, it may be most practical to transfer all or a portion of the KU Endowment account to KUCR or RI in order to handle the payments more expeditiously. Otherwise, KU Endowment may only transfer funds in an amount equal to the sensitive-use expenditure. Regardless of the underwriting process utilized by KU Endowment, the payment requests on the Lawrence campus to use KU Endowment resources for these sensitive activities should be directed to KUCR through the usual PeopleSoft procedures, and KUCR will then coordinate with the appropriate entities to complete the payment.

Paying or reimbursing for “lavish” or “extravagant” expenses is unacceptable. These terms are used in IRC Sec. 162 and are repeatedly used in IRS documents, usually with a following statement that these expenses are non-deductible. KU Endowment, as a tax-exempt organization, will determine in its sole discretion either not to pay or reimburse, or to reduce payment requests for expenses which are unreasonable.

The Fund Account Representative or formally authorized designee must provide an original signature on the check request form as their certification of the appropriateness of the expenditure request. This is an important financial control feature to help protect the KU Endowment fund from unauthorized – and potentially inappropriate – uses which are unknown to the Fund Account Representative. Signature stamps, electronic signatures, or unauthorized persons signing for the University representative will not be accepted as evidence of the representative’s approval.

It is also helpful to spell out the names of professional societies or other groups which may be referenced on check requests. Although the preparer may well know the meaning of a particular entity’s acronym, KU Endowment staff may not have such knowledge – and the payment may be delayed as the name and business relationship of the subject organization to the University of Kansas is confirmed.

Please do not hesitate to contact KU Endowment staff in questionable situations before KU Endowment funds are committed.

The IRS requires that tax-exempt entities like KU Endowment report financial information to them about fundraising events. Consequently, please clearly explain on the Check Request if the expense to be paid is related to a fundraising event. Please also see section 4.1 for procedures for depositing fundraising event contributions.

5.2 Employee vs. Independent Contractor Defined

The complex and ever-changing Internal Revenue Code and IRS rules, regulations and procedures cause the distinction between employee status and independent contractor status to be difficult to determine and often subjective in nature. However, because of the way in which these payments are reported to the IRS, it is very important to determine the proper classification. There are also state laws that govern the difference between employees and independent contractors for purposes of determining state unemployment tax. See the flow chart of independent contractor tax issues and the flow chart of employee tax issues.

Payments for services provided by non-employees (independent contractors) are reported to the recipient and the IRS on 1099 forms. Compensatory payments to employees are reported on a W-2 form. W-2s provide the IRS more assurance in receiving income tax payments through income taxes withheld, FICA and Medicare tax payments, and compliance with funding requirements for various employee benefit plans.

The definition of an employee is not limited to persons being paid through the payroll office. The facts of the situation related to the services being performed will determine whether the services are those of an independent contractor or an employee. Generally, students, especially including high school students, would not qualify as independent contractors. Please see the University Comptroller’s link for more on payments to students.

As a practical matter, completion of the University’s Contractual Services form will normally provide the required documentation to make this determination. Please also see the KU Procurement Services website for the University’s policies and procedures related to independent contractors.

The Contractual Services form must be included whenever services are being provided and the payment is for an individual or a non-incorporated entity, such as a sole proprietorship or a partnership. Omission of the form in these cases will delay the check processing. Please note that the statement on the form about attaching a voucher transaction log and submission to Accounts Payable, and the field for “Department Unit Number” do not apply to payments from KU Endowment accounts.

The IRS generally considers payments to a KU employee for services to be W-2 taxable, unless the services are separate and distinct from the work usually performed by that employee for the University. If there is a question concerning completion of the back of the form, especially Part I, question 1, please contact KU Endowment, or the KU Central Accounting Services Office for guidance at the Lawrence campus or Business Affairs at the Medical Center.

Because of the importance of this issue, KU Endowment staff will perform a similar match of persons on KU Endowment’s 1099 file to the University Employee file to ensure proper tax reporting. Any KU Endowment payments throughout the year which through this process are identified to KU employees, and which must later be reclassified as W-2 compensation (when the employee recipient had been expecting a 1099), will be included in the employee’s subsequent payroll as soon as possible. This almost always is an unpleasant surprise, due to a reduction in the employee’s net pay to cover the payroll taxes associated with the “compensation” previously received through the KU Endowment account; so an extra measure of caution should be utilized when analyzing these situations.

Travel and subsistence expenses related to the work of an independent contractor, such as travel and meal expenses to bring a visiting lecturer to the KU campus, are generally not taxable to the recipient, as long as the expenditures comply with accountable plan rules (see section 5.1).

5.3 Award Payments

Awards to employees of KU or KU related organizations (e.g. Kansas Union, Alumni Association, medical foundations, KU Athletic Corporation) are considered employee compensation and must be included in the recipient’s W-2. As such, cash awards must be processed through the payroll system of the applicable entity which employs the award recipient, in order to ensure proper tax reporting. KU Endowment will reimburse the paying organization for the award amount plus any associated payroll taxes and fringe benefits.

When an employee is eligible to receive a cash award which will be reimbursed by a KU Endowment account, the department must contact the University Budget Office which will create a unique Budget Account Number (BAN) and funding group. After this account has been established, the department must complete an Additional Pay Form (APF) which is then sent to the Budget Office for approval, and forwarded to Payroll for payment. The KU Payroll Office will include the cash award in a subsequent State payroll check to the specified employee and request reimbursement from the appropriate KU Endowment account. KU Endowment will then reimburse the University.

There are certain KU Endowment accounts which are designed to recognize outstanding accomplishment by making resources available to the selected recipient to further their research or teaching activities, with respect to which the recipient has no option to receive the award in cash. These types of transfers, usually between KU Endowment accounts, are viewed as a reallocation of resources and will not be considered a taxable award. They are an exception to the taxable income discussion above.

Sometimes an award recipient who is not an employee of KU or a KU-related organization may elect to direct his/her award payment to a KU Endowment account or another charitable entity. Under IRC Sec. 74(b), a transfer of funds like this may be made without recognition of income to the recipient if the following conditions are met: (1) the recipient was selected without any action on his or her part to enter the contest or proceeding, (2) the recipient is not required to render substantial future services as a condition of receiving the award and (3) the award or prize is transferred by the payor to a governmental unit or qualified charity. IRS Reg. 1.74-1(b) states that this exception does not apply to employment-related awards.

How an award is processed for a person who is both a student and an employee depends upon the reason the person is receiving the payment. If the award is due solely to academic achievement as a student, then the payment is not considered compensation for services and can be paid directly by KU Endowment. (However, see section 5.14 if the award payment is for a nonresident alien student). If the award is associated with the individual’s employment position, then the payment is considered compensation for services and must be processed through the payroll system of the entity which employs the recipient, and KU Endowment funds can then reimburse the entity employer. The substance of the transaction will determine the appropriate tax reporting. See section 5.8 for more details on award and other payments to students.

5.4 Gifts to Individuals (University Employees and Others)

The practice of offering “gifts” to employees is coming under increasing scrutiny from the State, regarding ethics issues, and from the IRS, regarding tax issues. Unfortunately, the ethics rules governing such gifts have not always been clear or well understood, but the State has taken a strict view regarding enforcement of the ethics law. (See Kansas statute KSA 46-237 & KS. Governmental Ethics Commission.) Not only do gifts from outside organizations, including KU Endowment, fall under the State’s ethics laws, but recent opinions from the State Ethics Commission have concluded that gifts from an employee’s state agency also are subject to the ethics law. The State Ethics Commission’s guideline for gifts to State employees provides for severe penalties for the employee. As a general rule, it is prohibited to accept or solicit gifts, discounts, loans or other economic opportunities in connection with an employee’s official position. There are several exceptions, including (1) gifts of less than $40.00 that are given at a ceremony or public function and the employee accepts because of the official position held; (2) gifts from relatives or personal friends that are unrelated to an employee’s official position; (3) gifts received on behalf of the state that become the property of the state; and (4) items received from the state agency as an employee award or other form of taxable compensation.

Additionally, whether permitted under Kansas ethics law or not, the IRS considers a gift to an employee to be an award or bonus, which is generally taxable, as discussed in the previous section, Faculty and Staff Awards.

Consequently, to ensure University compliance with State ethics law as it pertains to gifts, as well as IRS tax law and regulations, any payment or other transfer of property to or for the benefit of a University employee of $40 or more in value which is purchased with KU Endowment funds will be reported on the employee’s W-2 as taxable compensation to the employee. Examples of this situation include gifts of flowers, including delivery and any other charges associated with the gift; plaques, trophies, or other tangible expressions of appreciation; and meals in which only a few, select employees are invited to attend and for which there is more than an incidental personal benefit received. Except as noted in the last paragraph of this section, this statement does not prohibit the use of KU Endowment resources for these purposes, it simply recognizes that such purchases, if in excess of $39.99, will be treated as taxable compensation, rather than as gifts. Further, meals where a clear business purpose is documented, including departmental functions that build morale among employees, do not fall under the State ethics law because any personal benefit received from the function is incidental. (See section 5.6 for more on qualifying meal and entertainment expenses.) However, whenever it is determined that the $40 rule must be enforced, it will apply regardless of whether the payment or transfer of property is to recognize sympathy, job performance or other notable achievement or event. While gifts given after retirement from state service would not be subject to the ethics rule, withholding for IRS purposes will still apply. Note also that the entire amount is compensation, not only the excess over $40. Please see section 5.5 for information on how to process these taxable fringe benefit payments.

Employee gifts in the form of gift certificates or gift cards in any dollar amount are considered a cash equivalent, and are included in the employee’s W-2 income. Because the University generally disallows gift certificates, gift cards or bonus payments to employees, no KU Endowment funds may be used to pay or reimburse for gift certificates or gift cards given to KU employees.

None of the foregoing, however, precludes employees from taking up voluntary collections among themselves to purchase farewell or other gifts for fellow employees, including gift certificates. Supervisors are cautioned, however, that subordinates’ donations, in terms of amount and the decision to contribute, should be truly voluntary. When questions arise about whether a payment represents a gift to a State employee, the University General Counsel should be consulted for guidance.

Because KU Endowment is tax exempt under IRC 501(c)(3), it may use its funds only for its tax-exempt purpose of benefitting the University of Kansas. If KU Endowment funds are used to provide a “personal benefit,” both KU Endowment and the person authorizing the expenditures from the KU Endowment fund may be subject to sanctions from the Internal Revenue Service (see section 3.0). Under the Internal Revenue Code and IRS regulations, Endowment funds cannot be used to purchase non-business meals or other personal gifts, such as those for Secretary’s Day, Boss’ Day, new baby, weddings, etc. These items provide a disproportionate personal benefit to the recipient with very little benefit to the University, if any. As such, the expenditures are not made for a business purpose as defined by the Internal Revenue Code and IRS regulations and, consequently, will not be paid. However, this does not preclude the use of KU Endowment resources for bona fide staff meetings, luncheons, etc. or for employee recognition awards, as discussed above.

The IRS generally considers the transfer of gifts in a business setting to be taxable income. Taxable income of $600 or more to non-employees is reported to IRS on Form 1099. Although there may be no reporting to IRS for gift amounts less than $600, KU Endowment still must obtain the gift recipient’s social security number (taxpayer ID) for gift amounts that are not de minimis in value, in order to comply with IRS information collection requirements (see Confidentiality of Information in section 5.1 for procedures on how to provide this information). Although the de minimis value standard is not clearly defined by the IRS, a value of $25 has been cited in several court cases as an acceptable de minimis threshold.

Clearly, the intended goodwill of providing the gift can be negated somewhat by the required tax reporting, so KU Endowment will always communicate with the requesting unit/department when such a gift payment must be reported for tax purposes. In order to avoid the tax reporting, the requesting department can withdraw the request for payment or the recipient could accept the gift on behalf of the department, and return it to the department for display or re-use, etc.

If the requesting department determines to proceed with the gift purchase, it is acceptable to cover the related tax on the gift with a cash payment to the gift recipient. After KU Endowment is advised that the requesting department has informed the gift recipient of the tax impact, it will process the payment for the gift purchase and any related tax costs as requested by the department.

If a cash payment, such as honorarium, and a non-cash gift are provided to a non-employee, such as a visiting lecturer, and the combined value of the gift and the cash payment together exceed $600, a 1099 must be reported to the IRS. The full gift value must be included unless it is de minimis in value.

Obviously, any gifts purchased with KU Endowment funds must be given on behalf of the University department that benefitted from the service being recognized by the gift, as opposed to being given by the Fund Account Representative or any other specific person. Any gift that is represented as being solely from an individual is personal in nature. Paying for personal gifts is clearly contrary to KU Endowment’s mission, and such requests will not be paid. There must be a legitimate business reason for the University department to provide the gift.

5.5 Employee Fringe Benefit Payments

The Kansas University Endowment Association is a 501(c)(3) tax exempt organization. As such, the tax law imposes limitations upon the types of payments which can be processed. Specifically, all payments must be related to the purpose for which the organization is incorporated. Payments by KU Endowment must support the mission of the University of Kansas. In addition, any payment of unreasonable compensation is prohibited.

Any payment to or on behalf of an employee of the University or University related entity (e.g. KU Athletic Corporation, KU Alumni Association, medical foundations, etc.) must be included in the employee’s W-2 wages unless such payment is made in accordance with the rules of an accountable plan. In order to be considered within the scope of an accountable plan, (1) the payment must have a business purpose that is consistent with the employee’s services for the University; (2) the payment must be properly substantiated; and (3) the expense reimbursement and/or advance must be accounted for on a timely basis.

Occasionally, payments could still be classified as taxable compensation to an individual even though such payments meet the criteria of an accountable plan. For example, a cash award to a faculty member clearly meets the above requirements but still constitutes taxable wages to the recipient. When a payment confers personal benefit to an individual, such payment is considered to be a fringe benefit. As a general rule, any fringe benefit provided to an employee must be included in the employee’s W-2 wages unless such benefit is specifically excluded by the tax laws. For example, reimbursable moving expenses which are not exempted under the tax laws must be included in the employee’s W-2.

One of the excludable fringe benefits provided by the tax laws is known as a “working condition fringe benefit.” This clause excludes from an employee’s income any fringe benefit which would be deductible by the employee as an ordinary and necessary business expense if the employee had paid for such expense. In other words, there must be a valid business connection to the reimbursement. Examples of such expenses include mileage reimbursements and airfares for business trips, business meals, membership dues in a professional association, etc. even though there may be an element of personal benefit associated with these payments. Since the primary objective of the payment is connected to business and not personal gain, these types of payments are excludable from the employee’s income.

When KU Endowment identifies a payment request as being a taxable fringe benefit and the request is to reimburse the employee, then the payment will be processed through the KU Payroll Office as an additional fringe benefit. University departments should send a check request to KU Endowment with supporting documentation and attach the University’s Fringe Benefit Reporting form, which can be found at the KU Payroll site with the KU Endowment fund account number noted. KU Endowment will approve the Fringe Benefit Reporting form and forward to the University for payment to the employee. The University will then bill KU Endowment for the additional income to the employee and any employer-related costs (i.e. employment taxes) related to the payment.

If the payment request is to a third party, then the request should be sent to KU Endowment for processing. After the department has advised its employee of the taxability of the fringe benefit payment, and informed KU Endowment of this communication, KU Endowment will pay the request and notify KU Payroll for W-2 reporting. The University will then bill the KU Endowment account for any employer-related costs (i.e. employment taxes). The KU Endowment Association will reimburse the University for these costs from the KU Endowment account from which the fringe benefit was paid. The employee’s next paycheck will reflect any required additional withholding due to the fringe benefit being included in the employee’s W-2 wages.

Insurance must be a condition of employment and the coverage must be limited to covering any potential liability accruing from job responsibilities related to the individual’s University employment.

KU Endowment will not pay dues for country clubs, airline travel clubs or similar social club expenses. This policy does not apply to membership dues in professional associations and civic organizations, such as Chamber of Commerce, Rotary, Kiwanis, etc., provided there is a connection between the membership and the member’s University responsibilities. KU Endowment will not pay members’ additional contributions to civic and professional organization-related foundations.

order to ensure the appropriate use of mobile technology for University business, a University policy provides guidance to the University community regarding the proper approval process, procurement, use, and possession of mobile communication and information devices, including, but not limited to cellular telephones, handheld or tablet computers, internet access, personal digital assistants (PDAs), etc., for voice/data services. KU Endowment accounts may only be used as the funding source for the payment of devices that are approved under the University policy. In accordance with this policy, KU Endowment will not pay directly for devices or services, but KU Endowment resources may be used to provide funding through the University payroll or reimbursable payable process.

Reimbursement of meals for employees may be considered taxable fringe benefits in certain circumstances. See the following sections 5.6 Meals and Entertainment and 5.7 Travel for more details.

A common theme of the examples listed in the previous paragraphs is that the items or services purchased can be used for personal use as well as business use. The process described for payment in each case is designed to comply with IRS rules that prohibit tax-exempt entities like KU Endowment from providing a personal benefit to an individual employee, while still allowing KU Endowment to effectively assist the University employee’s activities on behalf of the University. Sometimes the payment can be made, e.g., for professional liability insurance; in other cases it cannot, e.g. country club dues. When requests for other items or services that have potential for personal use combined with business use are presented to KU Endowment for payment, KU Endowment will review the facts and circumstances of the situation and obtain all of the information necessary from the requestor to make an appropriate payment determination. A statement from the requestor that explains the business portion of the expense is required to adequately support such payments from KU Endowment funds.

5.6 Meals and Entertainment

Non excessive employee reimbursements received under an accountable plan for meals and entertainment expenses incurred in the performance of an employee’s duties for the University generally need not be reported in the employee’s taxable income. To be excluded from income, the expenses must be necessary within the usual operation of the University’s mission and directly related to that mission.

The University has a policy for Reimbursement of Entertainment Expenses which must be followed when using KU Endowment funds. Entertainment is generally defined to include attendance at restaurants, theaters, sporting events, etc. as well as the furnishing of food and beverages. The inclusion of meals here is when other persons join the employee at the expense of the KU Endowment account, not meals while an employee is traveling on a business trip. See Travel section 5.7 for the latter. The University policy for Reimbursement of Entertainment Expenses provides guidelines for per person dollar limits on the reimbursement of meal expenses for entertainment purposes.

In order to comply with the rules of an accountable plan, the payment must:

1) have a bona fide business purpose;
2) be sufficiently substantiated;
3) be accounted for on a timely basis.

The elements required to prove the legitimacy of an entertainment expenditure are:

1) the amount of each separate expenditure;
2) the date of the activity;
3) the place and description of the entertainment, such as dinner or theater, if not apparent from the name of the establishment;
4) the business purpose of the expenditure, i.e. how the University’s mission is advanced by incurring the expense;
5) the name and title of the other persons in attendance, to support how the benefit required in number 4 above will be derived.

In general, business must be discussed during the meal or other activity and every person whose expense is paid for by KU Endowment must have a business connection to the activity. Even though in some cases the business purpose is implied, it must be specifically documented to receive favorable tax treatment. This does not require a great deal of explanation.

In many cases, a short description will suffice (i.e. discussed new research project, conducted departmental staff meeting, etc.). KU Endowment will refuse payment for any meal or other entertainment expense for which the business purpose has not been sufficiently documented and, using IRS terminology, for any meal which is “lavish or extravagant.”

If business and non-business individuals are entertained at the same event, KU Endowment will only reimburse for the business persons at the event. If the expenses for the business individual are not specifically identifiable, it is permissible to allocate the total bill on a pro rata basis for the business persons. Obviously, unique occasions, such as paying for the meals of family/guests of a new distinguished professor at the professor’s inaugural lecture need not be allocated.

The business purpose for the meeting must not be incidental. It is difficult to prove the expense is directly related to the University’s mission when an employee is not present at the business meal or other entertainment activity.

Additionally, reimbursing for entertainment activities at theaters, sporting events, social gatherings, such as cocktail parties, country clubs, and golf and athletic clubs, are red-flag issues under an IRS audit. Purchase of Athletics/Fine Arts event tickets as tokens of appreciation for Advisory Board members is acceptable only if it is not regularly provided, is available to all members of the Board, and is generally documented to be before or after a Board meeting. Furnishing tickets for one Board member selectively could be viewed as private benefit.

Clearly, certain University staff, such as in the School of Fine Arts, may have bona fide reasons to entertain colleagues at a University-related performance or at the Lied Center, and the Athletics Department may have similar reasons to entertain at KU athletic events, but the fact remains that each of the previously mentioned activities is highly scrutinized by the IRS and must be carefully documented to comply with the requirements outlined in this section. Please contact KU Endowment’s Account Services staff in these situations before committing KU Endowment funds, to ensure that the reimbursement or other payment request can be processed.

Proper completion of a Travel/Miscellaneous Expense Report form will guide the user through the IRS rules to properly substantiate meals and entertainment expenses.

In order to help ensure the wisest use of KU Endowment resources, the purchase of alcohol from KU Endowment funds should be limited. The University’s Reimbursement of Entertainment Expenses policy and the Alcoholic Liquor at University Events policy state the procedures to be followed whenever a University employee is responsible for a University activity or event where alcohol is to be served. KU Endowment will rely on these policies when making decisions about payment requests from KU Endowment funds which include purchases of alcohol. Please include a completed Alcoholic Beverage and Reimbursement Pre-Approved Request Form with the KU Endowment payment request documentation, when required in accordance with University policies.

Events and activities that may include serving alcohol to attendees should be given careful consideration before the purchase of alcohol has been completed. In order to preserve the business nature of the activity, KU Endowment will not reimburse for the purchase of alcohol at business meals in which only University staff participate. Business meals that include students will be treated similarly to employee meetings depending on the facts and circumstances of the occasion.

KU Endowment may reimburse meal or entertainment costs for an employee’s spouse when there is a clear business purpose, rather than a personal or social purpose, for the spouse’s attendance. Because of the potential risks of providing disallowable personal benefits when spousal expenses are associated with University activities, the University’s policy on Reimbursement of Entertainment Expenses specifically addresses when KU Endowment funds may be used for spouse expenses. Spending from KU Endowment accounts will be determined based on this University policy.

Please refer to the University’s policy about reimbursement of entertainment expenses when planning retreats and other unit-wide activities.

5.7 Travel

When an employee is traveling away from his/her home campus on University business, KU Endowment can pay for costs associated with subsistence (e.g. meals, lodging, and local transportation expenses) and transportation to and from the destination. Any other expense (e.g. seminar fees, photocopying of business related materials, etc.) must have a documented business purpose in order to be reimbursed from KU Endowment accounts. For individuals on sabbatical leave, KU Endowment will reimburse only the agreed expenses in the contractual arrangement between the traveler and the University. KU Endowment will not pay for lavish or extravagant expenses, first-class travel, or trips or conferences aboard luxury cruise ships.

A KU Endowment Travel/Miscellaneous Expense Report is available as an Excel document to easily organize receipts and report travel expenses. The form or an equivalent report is required when submitting more than two receipts for travel. Receipts must be arranged in the order that they appear on the expense report. Please see the Receipt Substantiation portion of Section 5.1 for details on receipt requirements. Please contact KU Endowment’s Account Services staff whenever you have questions.

Transportation costs include mileage reimbursements. When a University employee uses his/her own car for traveling on University business, the IRS regulations allow reimbursement to be based upon a standard mileage rate. Effective for travel on January 1, 2024, IRS has established this rate as .67 cents per allowable mile. If the employee drives from his/her primary place of business (i.e. university office) to another business location, then the allowable miles are the actual miles driven. If the employee drives from his/her home directly to a business location which is not the employee’s primary place of business, then the allowable miles are those driven from the employee’s home or primary place of business (i.e. university office) whichever is less, to the business location. Every mileage reimbursement request must be accompanied with a Weekly Travel Expense Report form as a mileage log which shows: the date, point of origin and destination, miles driven and business purpose for trip. This form will help you to provide information required by IRS.

KU Endowment can only pay the expenses for those individuals who have a valid business relationship for traveling. Costs for persons with no valid business relationship for traveling will not be reimbursed from Endowment funds. KU Endowment will only pay for spousal travel when a bona fide business reason for the spouse to accompany the employee on the trip has been thoroughly documented. Since the IRS rules on spousal travel are very restrictive, the amount of documentation required to support the business purpose for the spouse will be substantially more than that required for just the employee. If a spouse accompanies an employee on a business trip, any incremental cost for the spouse will not be reimbursable unless there is a valid business purpose for the spouse’s travel. To qualify as a valid business purpose, the spouse’s business involvement must meet the tests in the Internal Revenue Code and regulations with respect to spousal travel. (See the IRS Publication 463 {not a part of this Handbook} for example.)

KU Endowment can only pay for trips which have a documented valid business purpose. Before any expenses can be reimbursed from KU Endowment funds, a complete description of the business purpose of the trip must be provided. When an individual is attending a conference, a copy of the conference brochure along with a statement by the traveler that s/he has attended the event must be submitted. For research trips, the traveler must submit documentation to validate the research nature of the trip. Examples of acceptable documentation for a research trip include correspondence with colleagues, a copy of a published article or a summary of a formal research proposal.

In some situations, the appropriate documentation validating the business relationship of the trip may be difficult to obtain. When confronted with such circumstances, please contact us before the trip so that we can work with you to secure the needed documentation. In some cases, inquiry of the traveler’s supervisor may be needed to document the authenticity of the business nature of the trip in compliance with IRS guidelines. As such, KU Endowment must in some circumstances request that the traveler’s supervisor confirm the business purpose of a trip. The intent of such an inquiry is limited solely to confirming the business requirement of the travel.

KU Endowment will not reimburse for alcohol as part of travel reimbursements for seminars, conferences, research trips or during sabbatical leave.

Personal days within a business trip will not necessarily defeat the business nature of the trip, provided that the primary purpose of the trip is business related. To ascertain the nature of a trip, each day must be classified as either business or personal. Days spent traveling to and from the destination where University business will be conducted are business days. As a general rule, any non-travel day where at least four hours is spent on University business is considered a business day. All other days are considered personal.

If the overall cost of a trip would be less if the traveler were to stay a day or two longer and travel on a cheaper flight (often the case on domestic travel with a Saturday night included), then KU Endowment can pay for the additional day’s subsistence expenses (i.e. lodging, meals, rental car). The additional days’ reimbursement cannot exceed the savings on the airfare. For this exception to apply, the traveler must provide KU Endowment with documentation from a travel agency, obtained at the time the travel is ticketed, to verify that the savings from the reduced cost of airfare when including the extended day (as compared to traveling immediately before and after the business activity) exceeds the subsistence expenses incurred for the additional days. If this exception applies, then these additional days will be considered business days for both the calculation as to the length of the trip and the percentage of personal days to total days.

The IRS has questioned the appropriateness of certain expenditures for out of town seminars which continue for more than one day but do not include full day meetings. This would not include meetings which, for instance, meet for less than a full day on the first and/or last day but otherwise meet full days. When a program does not meet for full days throughout its duration, there may be an appearance of significant personal time in connection with the trip. The reporting requirements for programs which do not meet for at least four hours each day will include, in addition to normal documentation, additional more detailed documentation to support the business purpose of the trip. For these days to be classified as business days, the additional documentation should include a narrative during the time outside of the seminar and its relationship to furthering the purpose of the University.

In determining which travel expenses can be paid by KU Endowment, trips are categorized into two types (foreign and domestic) and two time frames (seven days or less, eight days or more). Foreign travel constitutes international trips outside of the United States while domestic travel constitutes trips within the United States. The United States includes all fifty states and excludes U.S. Territories. If a trip is part domestic and part foreign, then the entire trip will be considered a foreign trip in applying the travel expense rules. This matrix provides a guide as to which travel expenses can be paid from KU Endowment accounts for applicable trips.

IRS regulations state that traveling expenses when part of the trip includes personal days are deductible by the taxpayer as business expenses when the trip is primarily business in nature. Further, if the trip is primarily personal in nature, the traveling expenses are not deductible. Because of the strict rules concerning IRC Sec. 501(c)(3) tax exempt status, KU Endowment will interpret these regulations as follows: For both domestic and foreign travel where the trip lasts seven days or less, if the percentage of personal days to total days is less than 50%, all of the transportation cost to and from the destination can be paid by KU Endowment. If the percentage of personal days to total days is equal to or greater than 50%, then none of the transportation cost can be paid by KU Endowment.

Regardless of the 50% rule for transportation expenses, KU Endowment can pay the subsistence cost (i.e. lodging, meals, local transportation cost while at location) only for those days classified as business.

When a trip lasts for eight or more days, a detailed itinerary of activities for each day must be submitted to properly substantiate the business nature of the trip. On a daily basis, the traveler should maintain a chronological listing of significant business related activities during each day and provide a description of the business reason and its relationship to the University. Any day which is not sufficiently documented with such an itinerary will be considered a personal day. The daily itinerary is required in addition to the standard business purpose description required for all trips.

If the percentage of personal days to total days is 25% or less, then for both foreign and domestic travel, 100% of both the transportation and subsistence cost are reimbursable for the entire trip.

If the percentage of personal days to total days is between 25% and 50%, then for both foreign and domestic travel the subsistence expense reimbursement is limited to days classified as business while transportation expense reimbursement depends upon whether the trip is foreign or domestic. Transportation expense reimbursement for foreign travel is limited to a percentage based on business days to total days of the trip, and transportation expense reimbursement for domestic travel is 100% reimbursable. If the percentage of personal days to total days is 50% or more, then for both foreign and domestic travel subsistence expense reimbursement is limited to those days classified as business, and none of the transportation cost will be reimbursed.

The IRS regulations do not allow a business deduction for travel expenses where the travel itself is the education. Since these expenses are not deductible by the employee, these expenses can not be paid from KU Endowment accounts. The Commerce Clearing House, Inc. Federal Tax Guide-1997 tax literature pertaining to this subject states the following: “Travel can itself be a form of education (e.g. a tour of Greek archeological ruins) or it can be undertaken primarily to obtain education (e.g. journeying to a distant university to attend a series of lectures). Deductions may not be claimed for travel that is a form of education. Deductions for travel expenses that pertain to obtaining an education may be claimed. For example, travel deductions may not be claimed by a French teacher who travels to France in order to maintain a general familiarity with the French language and culture. However, if a scholar of French literature travels to Paris in order to do specific research, the travel expenses may be claimed as educational expenses, provided that the general requirements for deductibility are satisfied.”

It is the University’s policy that any person who plans to travel outside the United States on University-related business obtain emergency evacuation and repatriation insurance, even if the funding for such travel is provided through a KU Endowment account. Please contact the KU Office of Study Abroad for more details about this important coverage.

The University further expects employees traveling on University business to file out-of-state travel requests, as appropriate, regardless of whether the source of funding for the travel is through a KU Endowment account. Please see the Graduate School’s or Comptroller’s websites for more.

Example 1:

Situation
On June 6, a professor drives from his University office to Topeka (25 miles one-way) for a business meeting. The meeting continues through the lunch hour. The professor spends $47 for lunch for himself and three other people. University business is discussed during lunch and all four individuals participated in the business luncheon. The professor documented: (1) the amount; (2) the date of the meal; (3) the place of the meal; (4) the business purpose of the meal and; (5) the business relationship of the persons attending the meal. The professor returns to Lawrence on June 6.

Reimbursable Expenses
Transportation cost reimbursement will be $28 (25 miles x 2 (2 way trip) x $.56). Since the professor left from his office, the allowable miles are the actual miles driven. The business lunch of $47 can be reimbursed since the business purpose was sufficiently documented. His total expense reimbursement is $75 ($28 (mileage) + $47 (business meal)).

Example 2:

Situation
Dr. Jones leaves on Wednesday, May 8 for a research trip to Miami, FL. Dr. Jones returns home to Kansas City on Wednesday, May 15. Since the duration of the trip (day of departure to day of return) is eight days, Dr. Jones provides a detailed daily itinerary. Below is the daily itinerary. The primary purpose of the trip is to work with Dr. Smith from the University of Miami on a research project. To substantiate the research nature of the trip, Dr. Jones submits to KU Endowment copies of correspondence between herself and Dr. Smith describing the nature of the research project.

Wednesday May 8: (Day 1)
9:00 a.m.-2:45 p.m.: drove from home to airport;
air flight to Miami; taxi to hotel;
2:45 p.m. – 5:00 p.m.: personal time
meal cost: lunch $10.00, dinner $20.00

Thursday May 9: (Day 2)
8:00 a.m. – 5:00 p.m.:
worked in lab with one hour off for lunch
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Friday May 10: (Day 3)
8:00 a.m. – 12:00 p.m.: worked in library
12:00 p.m.. – 4:00 p.m.: personal time
4:00 p.m. – 8:00 p.m.: worked in lab
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Saturday May 11: (Day 4)
Spent entire day on personal activities
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Sunday May 12: (Day 5)
Spent entire day on personal activities
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Monday May 13: (Day 6)
6:00 a.m. – 3:00 p.m.:
worked in lab with one hour off for lunch
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Tuesday May 14: (Day 7)
9:00 a.m. – 6:00 p.m.:
worked in lab with one hour off for lunch
meal cost: breakfast $5.00, lunch $10.00, dinner $20.00

Wednesday May 15: (Day 8)
10:00 a.m. – 3:00 p.m.:
travel time back to Kansas City
meal cost: breakfast $5.00, lunch $10.00

Additional costs beyond meal expenses are as follows:
Allowable mileage is 15 miles for one way trip to airport; round trip airfare $330; lodging $80 per day; taxi cab between airport and hotel $25 for one way trip; local transportation cost $10 per day; $15 for an alarm clock; $75 for entertainment activities (i.e. movies, sight seeing, etc.) during the weekend; and $65 for entertainment activities during the work week.

Reimbursable Expenses
Business Days vs. Personal Days
The first step in calculating any travel expense reimbursement is to separate the business days from the personal days. Since days of travel are considered business days and Dr. Jones worked at least 8 hours every day except the weekend days of May 11 and May 12, then every day except May 11 and May 12 are considered business days.

Determining the Percentage of Reimbursable Transportation and Subsistence Costs
As noted before, the entire trip lasted eight days. Since two of the days (May 11 and May 12) are considered personal, the percentage of personal days to total trip days is 25% ( 2 days / 8 days). Refer to the Reimbursable Travel Costs matrix with the following parameters: trip duration of eight days or more, percentage of personal days to total trip days is 25% or less, and domestic travel. According to the matrix, 100% of the transportation and subsistence costs can be reimbursed.

Determine Which Expenses Can be Reimbursed
The following transportation costs are reimbursable: $16.80 round-trip mileage between airport and home (15 allowable one-way miles x 2 trips x $.56 IRS mileage rate); $330 for airfare; and $50 for taxi service between the airport and the hotel ($25 per trip for 2 trips). Total reimbursable transportation costs are $396.80 ($16.80 mileage + $330 airfare + $50 taxi).

The following subsistence costs are reimbursable: $560 lodging ($80 x 7 days (assuming Dr. Jones checks out of the hotel on the morning of the 8th day)); meal expense of $255; and local transportation cost of $70 ($10 x 7 (assuming Dr. Jones incurs no local transportation cost on the 8th day)) for a total of $885.

Only those expenses supported with original receipts will be reimbursed. The total expense reimbursement for Dr. Jones is $1,281.80 ($396.80 transportation cost plus $885 subsistence cost). The alarm clock and the entertainment expenses are not reimbursable since they are considered to be personal expenses. Also note that the subsistence cost (lodging and meals) for the personal days are reimbursable since the percentage of personal days to total days for a trip which last eight days or more is 25% or less.

Example 3:

Assume the same facts as detailed in Example 2 except Dr. Jones’s husband accompanies her on her trip. All of the expenses detailed above are the same except, the cost of lodging has increased from the single rate of $80 to a double rate of $100. Assume further that there is no valid business reason for her husband to accompany her. Under this scenario, KU Endowment can only pay for those expenses applicable to the University employee’s travel. Therefore, the same expenses detailed in Example 2 are reimbursable. Specifically, Dr. Jones will be reimbursed for lodging at $80 per night, even though she actually spent $100 per night to include her husband.

Example 4:

Assume the same facts as Example 2 except the trip does not start until May 9. Under this revised scenario, the total days for the trip is seven. Assume that the weekend days (May 11 and May 12) were spent on personal activities as detailed in Example 2. This would mean that the percentage of personal days to total trip days is 29% (2 personal days to 7 total trip days). With these parameters applied to the Reimbursable Travel Costs matrix, then 100% of the transportation cost is reimbursable and subsistence costs are reimbursable only for those days spent on business. Therefore, the travel costs reimbursed in Example 2 are also reimbursable in this situation, however the subsistence costs for the weekend days are not reimbursable.

Example 5:

Situation
Professor Brown traveled to Europe for a research trip to Germany and Spain. He left his home on May 31 and returned July 21. The business nature of the research trip was sufficiently documented prior to his travel. Professor Brown’s wife and son accompanied him on his trip. There was no valid business reason for his wife and son to accompany him on the trip. Since the trip lasted longer than eight days, he provided a detailed daily itinerary of his travels. Except where otherwise noted, assume the following cost summary pertains to expenses for the professor and not his wife and son. Further assume that the subsistence costs for each day was $50 for the professor’s meals, $15 for the professor’s local transportation costs and $120 per night lodging expense for the whole family when a single rate was $90.

May 31: (1 day)
Professor and family flew to Rome via Atlanta. Airport shuttle from Lawrence to Kansas City for whole family was $75 when the fare for one person was $50. Airfare from Kansas City to Rome via Atlanta for professor was $1,500.

June 1 through June 13: (13 days)
Professor spends time touring Italy with family and no University business was conducted.

June 14: (1 day)
Professor and family flew to London. Professor’s airfare from Rome to London was $600.

June 15 through June 20: (6 days)
Professor spends time with family touring England. No University business was conducted.

June 21: (1 day)
Professor and family flew to Berlin. Professor’s airfare from London to Berlin was $350.

June 22 through June 30: (9 days)
Professor spent 8 hours each day on university research and sufficiently documented his work in a daily journal.

July 1 through July 5: (5 days)
Professor and family tour Germany and no University business was conducted.

July 6: (1 day)
Professor and family flew to Madrid. Professor’s airfare from Berlin to Madrid was $650.

July 7 through July 17: (11 days)
Professor spent 8 hours each day on university research and sufficiently documented his work in a daily journal.

July 18 through July 20: (3 days)
Professor and family tour Spain and no University business was conducted.

July 21: (1 day)
Professor and family return home. Professor’s airfare from Madrid to Kansas City via Atlanta was $1,200. The professor’s meals for the day were $50 and the airport shuttle fare for the family from the Kansas City airport back to Lawrence was $75 when the fare for one person was $50. No lodging or local transportation expenses were incurred on this last day of the trip.

Reimbursable Expenses
Business Days vs. Personal Days
The first step in determining the appropriate expense reimbursement is to separate the business days from the personal days. In general, travel days to and from a location where business will be conducted are considered business days. In this example, however, no business reason exists for the trips to Rome or London. As such, May 31 and June 14 would be considered personal days since there is no valid business purpose for the professor to travel to Rome or London. In contrast, June 21, July 6 and July 21 would be considered business days, since they represent days when the professor traveled to or from locations where research was conducted. The days June 22 through June 30 and July 7 through July 17 are also business days, as these days are those when the professor was working on research. All other days would be considered personal.

Determining the Percentage of Reimbursable Transportation and Subsistence Costs
The trip consisted of 29 personal days and 23 business days for a total of 52 days for the entire trip. The percentage of personal days to total days is 56% (29 personal days / 52 total days). According to the following parameters in the Reimbursable Travel Costs matrix for trip duration of eight days or more, percentage of personal days to total trip days is 50% or greater, and foreign travel–none of the transportation costs are reimbursable and subsistence costs can be reimbursed only for those days classified as business.

Determine Which Expenses Can Be Reimbursed
As noted above, since the personal element of the trip was greater than 50%, none of the transportation expenses can be reimbursed. The professor spent $185 ($50 for meals, $120 for lodging and $15 for local transportation) a day for subsistence cost. However, since the hotel expenses included additional cost for the professor’s wife and son, only the daily charge for a single rate can be reimbursed — $90 in this example. Therefore, the professor’s total reimbursement for the trip would be $3,460 (22 business days x $155 per day (comprised of daily subsistence cost of $50 for meals, $90 for lodging, and $15 for local transportation cost) + $50 for meals on last day).

Example 6:

Assume the same situation facts as those outlined in Example 5 except with the following changes:

June 21: (1 day)
Trip began when professor and family flew to Berlin via Atlanta. Airport shuttle from Lawrence to Kansas City for whole family was $75 when the fare for one person was $50. Airfare from Kansas City to Berlin via Atlanta for professor was $1,500. Professor’s meals for the day were $50.

June 22 through June 30: (9 days)
Professor spent 8 hours each day on university research and sufficiently documented his work in a daily journal.

July 1 through July 5: (5 days)
Professor and family tour Germany and no University business was conducted.

July 6: (1 day)
Professor and family flew to Madrid. Professor’s airfare from Berlin to Madrid was $650.

July 7 through July 18: (12 days)
Professor spent 8 hours each day on university research and sufficiently documented his work in a daily journal.

July 19 through July 20: (2 days)
Professor and family tour Spain and no University business was conducted.

Reimbursable Expenses
Business Days vs. Personal Days
Again, the first step in determining reimbursable expenses is to separate the business days from the personal days. The days of June 21, July 6 and July 21 are considered business days since they represent days when the professor traveled to or from locations where research was conducted. The days June 22 through June 30 and July 7 through July 17 are also business days as these days are those when the professor was working on research. All other days would be considered personal.

Determining the Percentage of Reimbursable Transportation and Subsistence Costs
The trip consisted of 7 personal days and 24 business days for a total of 31 days for the entire trip. The percentage of personal days to total days is 23% (7 personal days / 31 total days). According to the parameters of the Reimbursable Travel Costs matrix–trip duration of eight days or more, percentage of personal days to total trip days is 25% or less, and foreign travel–100% of the transportation costs and 100% of the subsistence costs are reimbursable.

Determine Which Expenses Can Be Reimbursed
100% of the expenses associated with the professor’s travel and subsistence can be reimbursed. Any costs associated with his family cannot be reimbursed by the Endowment Association. As such, only the airport shuttle fare of $50 each way and the daily single lodging rate of $90 can be reimbursed.

Under this scenario, the professor’s total reimbursement would be $8,150 ($3,450 for transportation cost and $4,700 for subsistence cost). Transportation cost reimbursement is computed as follows: $100 ($50 airport shuttle x 2 trips) + $1,500 (airfare for KCI to Berlin) + $650 (airfare for Berlin to Madrid) + $1,200 (airfare for Madrid to KCI). Subsistence cost is computed as follows: (30 days (June 21 through July 20) x $155 per day (comprised of $50 for meals, $90 lodging at the single rate, and $15 local transportation cost)) + $50 for the professor’s meals on the last day.

Example 7:

Assume the same situation facts as those outlined in Example 5 except with the following changes:

June 21: (1 day)
Trip began when professor and family flew to Berlin via Atlanta. Airport shuttle from Lawrence to Kansas City for whole family was $75. Airfare from Kansas City to Berlin via Atlanta for professor was $1,500. Professor’s meals for the day were $50.

June 22 through June 30: (9 days)
Professor spent 8 hours each day on university research and sufficiently documented his work in a daily journal.

July 1 through July 5: (5 days)
Professor and family tour Germany and no University business was conducted.

July 6: (1 day)
Professor and family return home. Professor’s airfare from Berlin to Kansas City via Atlanta was $1,200. The professor’s meals for the day were $50 and the airport shuttle fare for the family from the Kansas City airport back to Lawrence was $75 when the single person fare was $50. No lodging or local transportation expenses were incurred on this last day of the trip.

Reimbursable Expenses
Business Days vs. Personal Days
Again, the first step in determining reimbursable expenses is to separate the business days from the personal days. The days of June 21 and July 6 are considered business days since they represent days when the professor traveled to or from locations where research was conducted. The days June 22 through June 30 are also business days as these days were when the professor was working on research. All other days would be considered personal.

What Percentage of Transportation and Subsistence Cost Are Reimbursable
The trip consisted of 5 personal days and 11 business days for a total of 16 days for the entire trip. The percentage of personal days to total days is 31% (5 personal days / 16 total days). Plug the following parameters into the Reimbursable Travel Costs matrix at the end of section 5.7: trip duration of eight days or more; percentage of personal days to total trip days is greater than 25% but less than 50%; foreign travel. According to the matrix, reimbursement for transportation cost is limited to the business percentage of the trip, 69% (11 business days / 16 total trip days), and subsistence costs can be reimbursed only for those days considered business days.

Determine Which Expenses Can Be Reimbursed
Since the personal element of the trip was between 25% and 50% of the total trip, only 69% of the transportation expenses associated with the professor’s travel can be reimbursed. In addition, subsistence cost reimbursement is limited to those days considered business. Any incremental costs associated with his family cannot be reimbursed by KU Endowment. As such, only the single rate of $50 of each airport shuttle expense and $90 of the daily hotel lodging expenses can be reimbursed.

Under this scenario, the professor’s total reimbursement would be $3,532, which is comprised of $1,932 for transportation costs and $1,600 for subsistence costs. Transportation cost reimbursement is computed as follows: ($100 (for $50 airport shuttle x 2 trips) + $1,500 (airfare for KCI to Berlin) + $1,200 (airfare for Berlin to KCI)) x 69%. Subsistence costs are computed as follows: (10 days (June 21 through June 30) x $155 per day (comprised of $50 for meals, $90 for lodging at the single rate, and $15 local transportation cost)) + $50 for the professor’s meals on the last day.

Reimbursable Travel Costs Matrix

5.8 Student Payments -- Scholarships, Awards and Other Terminology

There are many names used at KU for payments to or for the benefit of students–scholarships, fellowships, awards, stipends, wages, expense reimbursements. The IRS requires the provider of any of these payments to follow the tax reporting and/or withholding rules based on the reason for the payment, regardless of the terminology used to describe it. Except for student loan payments, which are described in section 5.12, all KU Endowment payments to or for students can generally be categorized into one of the following four tax categories:

Scholarships or other payments, including certain forms of graduate fellowships, which are designed to assist in retaining students at the University of Kansas, and with no other benefit expected by the University (i.e. no employee relationship).
Awards and other payments which are designed to recognize a past academic achievement, which are not based on any employment relationship to the University, and which do not tie the future studies of the recipient to KU.
Employment-related payments, for example including awards and other payments for graduate teaching/research assistants (GTAs/GRAs) if the payment is to recognize the recipient based on his/her teaching/research performance rather than his/her academic excellence.
Expense reimbursements where the expenditure primarily benefits the University.

A note about fellowships. This term continues to be widely used, usually either to mean a graduate student scholarship, e.g. payments for books and tuition, or to mean an employment-related or other taxable payment for graduate students, e.g. payment to GTA’s for teaching services or GRAs for research services rendered. As explained further in this section, the tax guidelines require that these seemingly similar definitions of fellowships must be handled for tax reporting purposes in very different ways. The Comptroller’s web site also discusses Student Scholarships.

A flow chart has been included at this page to assist in the processing of payments to or on behalf of students.

Under Internal Revenue Code (IRC) Section 117, scholarships for tuition, books and fees are not taxable. Any scholarship amounts in excess of tuition, books and fees, such as for room and board, are taxable. Any payment for services which benefit the University, regardless of whether it is called a scholarship, is considered employment compensation and must be included on the employee’s form W-2. For example, even payments for tuition and books will be taxable if they are provided to compensate for research or teaching services. All scholarships which are unrelated to services performed, except those for nonresident aliens, are not reportable to the IRS although the student must include the portion of the amount received in excess of tuition, books and fees as taxable income.

Under IRC Sec. 74, in general, prizes and awards are includable in gross income. These amounts are reportable on a form 1099. As such, all student awards are taxable and those amounts which exceed $600, when aggregated with other reportable payments, must be reported on a 1099. Please note that taxable awards may include payments made directly to a student or those made indirectly on a student’s behalf, e.g. payments made to a bookstore for books purchased on behalf of a specific student.

Through Revenue Rulings, the Service has provided some guidance to help in differentiating an academic award from a scholarship. The general rule is that a prize or award is primarily related to past activities of the recipient, while a scholarship is prospective in its objective to keep the student enrolled. However, selecting a payee based upon past academic performance will not preclude a payment which maintains the enrollment of the selected individual from being considered a scholarship. If a payment which advances a student’s academic program has elements of both past activities and prospective activities, then it is presumed to be a scholarship, unless the facts of the specific situation dictate that the payment is clearly a student award or compensation for services.

To qualify as a scholarship payment, the student must be enrolled at the University at the time the payment is made. According to IRC Sec. 117(c), the definition of a qualifying scholarship excludes payments by KU Endowment, even if for tuition, fees and books, if the payment requires teaching, research or other services to be performed by the student as a condition for receiving the payment. These employment-related tuition payments are compensation and must be reported on the recipient employee’s W-2 (also see section 5.8).

Traditional scholarships for tuition, books or fees are provided at the beginning of each semester. All traditional scholarships are administered through the Office of Student Financial Aid on the Lawrence and Medical Center campuses. When a traditional scholarship is intended to be paid from KU Endowment funds, the Office of Student Financial Aid draws the scholarship amount from the applicable KU Endowment account, records the scholarship on the student’s financial aid record and posts the scholarship to the student’s KU account.

The University will process a check to the student for any scholarship amount which exceeds the student’s total charges. An example of this process to pay the student the excess amount is when a KU Endowment scholarship fund is designed to assist the student in paying for off-campus housing expenses, in addition to tuition, books and fees. It should be noted that if a student has outstanding charges on her/his KU account, such as library fines, housing charges, etc., the requested scholarship payment will be first applied to satisfy these obligations.

Certain other types of payments made on behalf of students, such as for travel or lodging, or for monthly stipend payments, may also be considered scholarships. These types of payments generally fall into one of the following categories: 1) students representing the University of Kansas, such as when the debate team travels for a debate tournament, or when a student travels to present a paper at a conference; or 2) payments related to the academic program of the student, such as when a student travels on a research trip, or payments for the purchase of a specific student’s textbooks, or monthly stipend fellowship payments that are unrelated to services performed for the University. As a general rule, any payment on behalf of a student which does not fall within the two previous categories will not be paid. When payments on behalf of a student have elements of both representing the University and augmenting the academic program of a student, the payment is presumed to be for the student to represent the University.

For payments in the first category described beginning at the end of the previous page, where the student’s activities (e.g. travel) are primarily benefitting the University, any benefit that the student receives is treated like an employee working condition fringe benefit. As a result, these payments can be made by KU Endowment, and any such payment which complies with the accountable plan rules (see section 5.1) is not reportable or taxable. Because student recruitment is related to University business, reimbursement for travel expenses for prospective students and their parents is appropriate and non-taxable, assuming the expenses are properly documented.

A payment within the second category described above, where the activity being supported by the KU Endowment fund is primarily benefitting a student’s academic program, is considered a non-traditional scholarship. While these amounts may be taxable to the recipient, as described at the top of this page, there are currently no tax reporting requirements for a scholarship (except for nonresident alien students – see section 5.14). These types of non-traditional scholarships should be directed to the KU Central Accounting Services Office if they are to be ultimately underwritten by a department’s KU Endowment development fund account (see section 5.13). Please note that state policies for University accounts payables, such as usage of specific travel providers, will apply. Non-traditional scholarship requests which are to be ultimately underwritten by a KU Endowment account that is specifically restricted for scholarship use should be sent to the Office of Admissions & Scholarships. In either of these cases, the KU Endowment account will then be charged to reimburse the University for the payment. Additionally, no receipts need to be submitted to KU Endowment. Please contact the KU Office of Student Financial Aid or Central Accounting Services if you are not sure where to direct your check request.

NOTE:
The Fund Account Representative, as the person most knowledgeable of the student’s specific situation, must make a determination of the correct classification between a scholarship payment and an award payment when the payment has elements of both scholarships and awards. Student award processing procedures are outlined below. Please note that if a student-related check request is submitted to KU Endowment which has elements of both a scholarship and an award (but which clearly does not qualify as an accountable plan expense reimbursement or as employment-related compensation), KU Endowment will presume the Fund Account Representative signing the check request has determined the payment to be a student award. KU Endowment staff will then verify the appropriateness of paying a student award from the requested fund account, make the payment, and consider it to be 1099 reportable to IRS, as discussed further in the following section.

Award payments to recognize academic achievement are paid directly by KU Endowment to the students (or can be to third parties, on the students’ behalf, see the top of this page) and are considered to be taxable payments, reportable on IRS 1099 forms. They should be submitted to KU Endowment on Student Award/Prize check request form. (Please note that award payments to nonresident aliens are exceptions to the rule. These payments should be submitted to Central Accounting Services (see section 5.14). Candidates may include GTAs, GRAs, medical residents or other students who are also employees of the University as long as other non-employee students are also bona fide candidates.

Payments to students who are GTAs, GRAs, residents or other student employees which are associated with the student’s employment relationship must be reported on the recipient’s W-2, however, regardless of whether the payments are referred to as awards, or fellowships, or stipends, etc. (see section 5.3 Faculty and Staff Awards/Bonuses.)

If the payment to the student is for services performed as an independent contractor, then the Contractual Services Form, should also be completed and submitted with the standard check request.

5.9 Equipment/Book/Furnishing Purchases

Assets purchased with KU Endowment funds must follow the University’s Procurement Office Policies, and the assets become University property when acquired. In order to help alleviate IRS concerns about any personal benefit being provided by KU Endowment funds, a simple statement on the check request form that affirms the purchaser’s understanding that the items purchased are University property (not personal property of the purchaser) will be required for payment. KU Endowment reports all purchases of books, equipment and furnishings to the KU Purchasing Office, so that these items may be tracked by the University. See the Sample Equipment Statement.

Due to the difficulty in controlling University assets, KU Endowment will not accept expenditure requests for books or equipment which are not clearly delivered to a University location. (Likewise, requests for repairs or maintenance of equipment not located at and billed to a University location will not be paid.)

5.10 Payments for Admission Fees to KU or KU Endowment Events

University employees are occasionally requested by their supervisor to attend events sponsored by the University or related entities. In these cases, it is expected that these persons will be official University representatives conducting University business at the events. An explanation of the business purpose for the employee’s attendance must be adequately documented by the supervisor. The employee’s costs of attending such events may then be reimbursed from appropriate KU Endowment accounts for the benefit of the employee’s academic area.

When the spouses of other attendees are customarily in attendance, the expenses for the employee’s spouse to attend the event are also reimbursable from KU Endowment accounts.

Please note that when a specific Fund Account Representative is requesting reimbursement for such events, the general rule of obtaining the approval of the requestor’s supervisor, as a control measure (see section 3.0), must be followed.

5.11 Retired Employees/Volunteers/Adjunct Faculty

Payments to or for the benefit of retired or emeritus employees must have a documented business purpose which benefits the University of Kansas, as with all other types of expenditures. The fact that these persons are no longer on the active payroll need not exclude supporting their activities, as long as the activities directly benefit the University and the University benefit is sufficiently documented.

Generally, volunteers and adjunct faculty fall into the same category. Payments or reimbursements to support their work at the University are entirely appropriate, as long as these expenses are providing a direct benefit to the University and the value of the services provided exceed the cost of the expenses being reimbursed.

From a tax standpoint, payments to retired or emeritus faculty, adjunct faculty, and volunteers which must be considered taxable will be reported as either an independent contractor (on form 1099) or an employee (included in KU payroll), depending on the facts of each payment. The Contractual Services form is required for payments to these persons to help KU Endowment staff determine the appropriate tax reporting process.

5.12 Loans to Faculty/Staff/Students

Payroll loans may be provided from KU Endowment accounts to University faculty and staff. Providing personal loans to faculty and staff from KU Endowment resources is prohibited.

As a service to the University, payroll loans will be provided from KU Endowment loan accounts if the employee’s department or the KU Payroll Office has made an error and the State paycheck will not be available on schedule. The amount of the loan requested cannot exceed 60% of the gross pay due. Because the loans are non-interest bearing, they must be for a short duration. We believe the following procedure will be acceptable to IRS.

Payroll loan requests must be submitted to KU Endowment on a Request for KU Endowment Payroll Loan form. These forms are available in the KU Payroll Office and at the Comptroller’s web site. If the payroll loan is requested due to a processing error in the employee’s department, the completed request form must be signed by the employee’s chairperson, dean, or director and approved by the Provost, Vice Chancellor, or University director, as appropriate. If an error has been made by the Payroll Office, the form may be signed by a payroll specialist and the payroll director. Incomplete forms may cause a delay in providing the loan to the employee.

If the completed loan request is received in the KU Endowment loan office before 12:00 p.m., the check will be available after 12:00 p.m. the following day. Direct deposit is also available to make funds available in the KU employee’s checking account in two business days.

KU employees receiving KU Endowment payroll loans must sign a Promissory Note and Repayment Authorization form. KU Payroll Department will withdraw the repayment of the payroll loan from the borrower’s direct deposit checking account at the earliest possible date after the State payroll deposit has been made. KU Payroll Department will assume collection of all Payroll loans.

University departments should communicate with the KU Payroll office for information on supplemental payrolls before submitting payroll loan requests. It may not be beneficial to the employee to submit a payroll loan request if the related payroll deposit is expected within four to five working days, as compared to the time to process a KU Endowment loan.

The KU Payroll office will notify KU Endowment and the appropriate department in the event there is a delay in receipt of supplemental payrolls, and when the deposit is expected, so KU Endowment can extend the loan due date appropriately.

Payroll loans will not be approved from department funds using a KU Endowment check request form. KU Endowment also will not approve payroll loan requests for student stipends, as these students have the option of either obtaining a loan through the KU Endowment student loan program or requesting supplemental pay through the Comptroller’s office.

KU Endowment operates a very successful student loan program, offering resources designated by generous contributors for loan use. The program is not designed to provide enough resources to fully fund a student’s educational experience at KU; but based on the level of loan activity, these funds do provide important assistance for students to continue their studies.

More information about the student loan program is available in student loan section and at the KU Endowment office.

5.13 Payments Processed Through the University to be Reimbursed by Endowment Funds

It is permissible to use KU Endowment funds to support specific University faculty or staff positions, as long as this use is consistent with any restrictions placed on KU Endowment by the donor, the use is approved by the appropriate KU Endowment Fund Account Representative, and appropriate University staff approves the employee position.

To initiate a University employee’s salary to be funded by a KU Endowment account, the appropriate State payroll form should be submitted to the KU Payroll Office, with the KU Endowment account number noted. The Payroll Office will process a State payroll check to the specified employee and request reimbursement from the appropriate KU Endowment account. KU Endowment will then reimburse the University.

After reimbursement has been made to the University, summarized payroll transactions in this KU Endowment fund account can be reviewed in the fund Transaction Statement, which is available online to the Fund Account Representative. A detailed listing of employees included in each payroll will also be supplied to the Fund Account Representative periodically. It is important for the Fund Account Representative to ensure that these transactions are consistent with the payroll authorized by the Fund Account Representative to the KU Payroll Office. Any discrepancies should be communicated to the Payroll Office and to KU Endowment immediately.

Please note that KU Endowment will not process the reimbursement if the fund does not have sufficient resources or if the request does not fit within the restrictions of the KU Endowment account. Should KU Endowment be unable to reimburse the University in these situations, KU Endowment staff will notify appropriate campus administrators to resolve the situation.

This section pertains to all payments other than those related to payroll (see above for discussion on reimbursed payroll) which are to be ultimately underwritten by KU Endowment accounts, but which must be paid to the end recipient through state accounts before being reimbursed from the KU Endowment account. These payments are usually processed through the University’s Procurement Services office and charged (and ultimately reimbursed by the KU Endowment Fund) to the Department’s “725 account.” An example of such a situation is a purchase on a business purchase card that will be funded by an Endowment account.

Payment for moving expenses for University unclassified employees is another example of this situation. Please refer to the Comptroller’s website at Policy Procedure Moving Expense for Lawrence campus procedures. For Medical campus procedures, please refer to KUMC Institutional Finance and Administration’s website.

Payments for Research activities that are processed through the KU Center for Research as described in section 5.1, is another example.

In order to protect the specific KU Endowment account from unauthorized charges to reimburse these types of expenses, yet process appropriate payments through the University system as expeditiously as possible, the Endowment account and an explanation of how the expenditure benefits the subject University unit, i.e., the KU business purpose, must be identified in the PeopleSoft system. After reimbursement has been made to the University, summarized transactions in the KU Endowment fund account can be reviewed in the fund Transaction Statement, which is available on-line to the Fund Account Representative (see section 6.0).

A detailed listing of the transaction will also be supplied to the Fund Account Representative periodically. It is important for the Fund Account Representative to review these reports to ensure that these transactions are consistent with authorized payments.

Please remember that the purpose for the expenditure by the University that is subsequently reimbursed by the KU Endowment account must still be consistent with any usage restrictions placed on the KU Endowment account as specified by the account donor. KU Endowment staff will follow up with the Fund Account Representatives with any questions that may be required to ensure timely handling of the requested payments.

5.14 Nonresident Alien Payments

There are several issues surrounding the taxability of payments to nonresident alien individuals which make the tax law in this area extremely complicated and confusing. The first issue to resolve is whether the payment is to, or for the personal benefit of, a nonresident alien individual. This IRS flowchart will help to make this determination. (Please refer to page 5 of the IRS document.)

The visa type of the nonresident alien is another important factor in determining what payments can be made to or on behalf of this person. Please contact KU Central Accounting and Purchasing Services (CASPUR) before committing KU Endowment resources to benefit nonresident alien persons, to ensure that the payments you want to make are appropriate for the recipient’s specific visa type.

Requests for payments from KU Endowment funds to or for the benefit of nonresident aliens should be processed through CASPUR, except in cases where the nonresident alien is being reimbursed for approved travel or other substantiated business expense payments. CASPUR will make most payments directly to the nonresident alien individual, and then charge the appropriate KU Endowment account, per your request, to reimburse the University. See section 5.13 for further details about these payment procedures.

Check requests for travel and other business expense reimbursements for nonresident aliens (the exception noted above) may be directed to KU Endowment for payment (subject to the accountable plan rules discussed in section 5.1). Travel advances for nonresident alien employees of the University also can be processed through Endowment. Nonresident alien students cannot receive travel advances, but they can be reimbursed for substantiated travel or business expenses. If the payment can be paid directly by KU Endowment, as explained above, the proper completion of the Residency Status and Visa Type fields on KU Endowment’s Check Request form, is essential to properly initiate the payment.

Unfortunately, the type of visa held by the nonresident alien may override these payment rules in certain situations, which would prevent either KU Endowment or the University from making payments of any kind to the unlucky visaholder in these cases. Obviously, it is imperative to communicate with CASPUR before committing resources to benefit nonresident alien persons, to ensure that the payments you want to make can be paid as you wish.

For the record, the general tax rule for handling most payments to nonresident aliens, excluding the substantiated business expense reimbursement exception described in the preceding paragraphs, is that the payor will withhold and report to IRS 14% of taxable scholarship payments to students and 30% for all other payments. These withholding requirements apply to all compensation for services, such as honoraria to visiting lecturers, etc., and payments to third parties or directly to the nonresident alien individual which provide personal benefits, such as unsubstantiated amounts received as a travel advance (see section 5.7 for more on travel advances). After discussion with KU Endowment’s tax counsel and appropriate University staff, the following alternatives are suggested to handle this situation when negotiating with nonresident alien service providers:

Agree to increase the base payment to include a tax withholding amount at the appropriate rate, 30% or 14%, or
Inform the nonresident alien individual that all income payments, such as honoraria, etc. may be reduced by the 30% or 14% withholding requirement.

To be clear on the effect that these two tax withholding options may have on KU Endowment funds from which the services are paid, some of the nonresident alien individuals who have tax withheld may be able to receive a refund of the withheld amount if they file a U.S. tax return. If this is the case, and Option 1 to “gross up ” the payments has been elected, the KU Endowment account may be footing the bill for an expense that is recoverable by the nonresident alien when (s)he files his/her tax return.

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