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Compliance & Policies

Policy on Private Use of Washington University Research Facilities

Effective Date: April 1, 2012

Facilities owned by Washington University in St. Louis may sometimes be made available for use by or for the benefit of other parties. While these arrangements are often mutually beneficial, there are certain situations in which this practice can present problems for the institution. The university often issues tax-exempt bonds to finance the construction and renovation of various facilities. The Internal Revenue Code places strict limits on the amount of “private use” that can take place in facilities financed with tax-exempt debt. If the amount of private use exceeds applicable limits, the potential penalties are severe.

Private use occurs in two forms. If the university, another charitable organization or a state or local government uses a university facility financed with tax-exempt debt in an unrelated trade or business activity, that is, an activity unrelated to its charitable or governmental purpose, such use is deemed private use. In the second form, any entity or individual other than the university, another charitable organization or a state or local government that uses financed facilities for any purpose is also potentially private use. In most cases, this group of users takes the form of individuals or entities engaged in a trade or business. An agreement that can result in private use can take many forms, including but not limited to, leases, non-educational sales and service agreements, research agreements, material transfer agreements, management contracts and clinical trials.

There are exceptions that allow certain types and levels of private use without penalty. Before any private use activity is conducted that does not qualify for one of these exceptions, various internal approvals must be obtained following the procedures set forth in the university’s private use policy and procedures on the tax policies and procedures website. This policy is not intended to exclude the private use of space, because these arrangements are often desirable for the departments, school and the university. It is intended to ensure that such use is disclosed fully so that any inadvertent, adverse consequences can be avoided.

Under university policy, no new private use may be conducted unless the same is first determined to be exempt from the requirement to obtain approval or approved in accordance with the policy. A new private use will be approved if there is a compelling reason to do so that somehow advances an important university objective that cannot be met without incremental private use. For this purpose, the fact that the proposed activity will generate revenue will not in itself be considered compelling, even if the revenue will in turn support a university objective. In no event will a transaction be approved if doing so will cause the university to exceed the applicable limits on private use.

Although the full policy must be consulted for details, the following is a list of potential exceptions from the requirement to obtain approval for a particular activity.

  1. A clinical trial or sales and service transaction involving revenue below a specified reporting threshold; the threshold is subject to change to maintain compliance with IRS requirements
  2. Activities taking place in facilities not financed with tax-exempt debt
  3. Activities where the user is not a private user
  4. Activities that are not private uses
  5. Activities that are private use but to which a short-term use exception applies
  6. Activities that are private use but which qualify under other regulatory safe harbors

If an activity does not qualify for one of these exceptions, the involved university department is required to prepare and submit an application for approval to allow or conduct the activity to the university debt service accountant. See page three of the full private use policy for a full explanation of these exceptions. In summary, the steps required to obtain approval are:

  1. After any further investigation and analysis by the debt service accountant, the application is forwarded for approval by the dean or vice chancellor or executive vice chancellor with oversight responsibility.
  2. If approved at that level, the application is forwarded for approval by the treasurer.
  3. If approved at that level, and the activity or agreement does not involve research, no further approval is required. If it does involve research, the application is forwarded for approval by the vice chancellor for research (VCR).
  4. If approved by the VCR (if applicable), no further approval is required.

Under the tax code there are broad record retention requirements applicable to documentation evidencing use of facilities financed with tax-exempt debt (e.g., copies of management contracts, research agreements, etc.). To ensure compliance, the university has adopted its own record retention policy for records applicable to tax-exempt debt. Applicable records must generally be retained for the maturity of the debt plus three years.