IRS allows Prospect Foundation to remain tax-exempt

As the April 15 tax deadline approaches, many Americans are beginning to worry about dealing with the Internal Revenue Service.

For officers of Prospect Foundation, the eating clubs' primary fund-raising organization, their IRS worries may finally be over.

According to Prospect Foundation chief legal counsel Robert Haines '61, an IRS audit that threatened to end the foundation's tax-exempt status is in the final stages of being resolved.

Prospect Foundation, which is currently affiliated with all eating clubs except Charter Club and Tiger Inn, was founded in 1959 to facilitate tax-deductible donations from alumni to the eating clubs, said foundation treasurer Gordon Harrison '68. The organization distributes approximately $20,000 to $30,000 to each club every year, he said.

According to Haines, the IRS has agreed not to revoke the foundation's tax-exempt status as a 501(c3) charity on the condition that eating clubs follow stricter guidelines on how funds from Prospect Foundation are spent.

"Any expenditures made must have at least a 50 percent educational component," Haines explained. "(The clubs) are not going to be able to spend the money on refurbishing taprooms," he added.

Haines said the final documents relating to the agreement with the IRS arrived in his office last Thursday. "The deal has been set, I just have to get it approved by the foundation board," he said. Under the agreement, the foundation only has to change its procedures. No fines or penalties will be assessed.

According to Haines, the audit began over the issue of "unrelated business taxable income" after the University was audited in 1991. "The IRS woman (Mary Ellen Aveginis) took a pretty harsh position," Haines explained. "She wanted a retroactive revocation of our tax-exempt status."

In that event, the foundation would have been required to perform a "tax assessment" to determine the amount it owed in back taxes, Haines said.

After Haines filed a protest, the case appeared before the appeals division of the IRS and reviewed by Aveginis.

"One of the arguments she used was that the foundation did not have a provision for an alternate beneficiary of funds if Princeton University were to go out of business," Haines explained.

The trustees of a charity like the Prospect Foundation are required to deliver any assets to another charity if the organization becomes insolvent, Haines said.

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"I told her, 'Ms. Aveginis, Princeton University has been in business for 200 years,'" he said.

According to Haines, Prospect Foundation could not continue to function except as a tax-exempt charity. "As a practical matter, it would have gone out of business," he said.

"They just wouldn't have gotten any contributions."