These Universities Benefit From an Offshore Tax Loophole
Universities are always looking for new ways to increase returns on their endowments. The hunt for lucrative investments has reportedly led several institutions offshore.
College endowments are typically exempt from federal taxes. However, when income is earned on an endowment outside of the core educational mission, it can be subject to taxes. A New York Times report on Wednesday describes how some universities use “blocker corporations” — a loophole that effectively uses a middleman based in a low- or no-tax destination, like the Cayman Islands — to avoid paying taxes on the income.
The revelation is the latest in the Times’s “Paradise Papers” series, a trove of documents retrieved by a consortium of investigative journalists from a Bermuda-based law firm.
“They’re not cheating. They’re not hiding money or disguising money,” Samuel Brunson, a law professor at Loyola University Chicago, told the Times. “But they’re adding money to a system that allows people, if they want to hide their money, to do it.”
Texas Christian University’s chief investment officer, Jim Hille, acknowledged that it used a blocker corporation. But several other institutions, including Colgate, Columbia, Indiana, and Stanford Universities and Dartmouth College, declined to comment.
The University of Texas system, Columbia, the Johns Hopkins University, and the University of Southern California were also identified in the news article as institutions that used the “blocker” tactic.
Even though the use of blockers is legal, several members of Congress have criticized them. Last year three Republican lawmakers sent a letter to colleges with large endowments seeking information about their tax breaks.