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Business Officer Magazine

Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark and Mary Bachinger

Report Contends Sequester Cuts Could Be Devastating

In response to a legislative mandate, the White House Office of Management and Budget (OMB) released a report on September 14 detailing how the sequester—a default action of automatic, across-the-board spending cuts—will affect the federal budget, program by program. "Sequestration is a blunt and indiscriminate instrument," the report states. "It is not the responsible way for our nation to achieve deficit reduction." The OMB report goes on to say, "Sequestration would have a devastating impact on important defense and nondefense programs."

Few Exceptions

The Pell Grant, among a select few programs with special treatment, is protected for one year (FY13) from sequester cuts. However, by and large, all other federal student aid programs would be cut by 7.6-8.2 percent, according to the OMB report. The Supplemental Educational Opportunity Grant and the Federal Work-Study program each would be cut by 7.6 percent across the board. Federal college access programs, such as TRIO and GEAR UP, would see an 8.2 percent cut. The origination fee of 1 percent for unsubsidized Stafford student loans would be raised by 7.6 percent, to about 1.1 percent of a total loan.

Most federal research budgets at agencies such as the National Institutes of Health, National Science Foundation, and Department of Energy would see an 8.2 percent budget reduction, but defense research would be subject to a 9.4 percent reduction.

Somewhat surprising is the fact that the OMB report indicates that the federal subsidy payments for Build America Bonds (BABs) would be cut under the sequestration process. Of $4.2 billion of subsidy payments authorized for issuers of BABs and other direct-pay bonds in FY13, 7.6 percent, or $322 million, would be cut. According to The Bond Buyer, Treasury Department officials assured municipal bond issuers in 2009 that they could rely on receiving their BABs subsidy payments.

Political Reactions

President Obama has taken the position that the cuts would be so excessive that Congress should act to halt the planned sequester, while Republicans have focused on repealing the sequester's mandate for Department of Defense reductions. Some bipartisan coalitions continue to press for "going big," calling for plans to reduce the deficit by at least $4 trillion over the next decade.

The November elections will determine the path forward. A lame-duck Congress may halt the planned sequester, or a new Congress will address the situation in the new year, once members are sworn in and the 113th Congress convenes.

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553

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IRS Makes Interim Changes to ITIN Process

For several years, the IRS has issued Individual Taxpayer Identification Numbers (ITINs) to foreign individuals (both resident and nonresident aliens) in need of a U.S. taxpayer identification number for tax reporting purposes but not eligible to obtain a Social Security number from the Social Security Administration. Individuals may apply for an ITIN by filing Form W-7 with the IRS on their own. Alternatively, they may apply with the assistance of an "acceptance agent," which is an entity (such as a college or university) authorized by the IRS to assist individuals in obtaining an ITIN by reviewing the necessary documents and forwarding the completed forms to the IRS on behalf of the individual. Many colleges and universities function as acceptance agents.

New requirements for 2012. As part of a comprehensive review of the processing regime, the IRS recently issued new procedures that will make it more difficult for individuals and acceptance agents to obtain ITINs. These new procedures became effective on June 22, the date of issuance, and will be applicable only through the end of 2012. The new procedures, however, will not apply to individuals who filed their Forms W-7 prior to the June 22 issuance date. Final rules are expected to be published later this year to take effect in 2013 and subsequent years.

Under the new interim guidelines, the IRS will issue ITINs only when the Form W-7 (submitted by the individual or the acceptance agent) includes either (1) original documentation (such as passports and birth certificates); or (2) certified copies of these documents from the issuing agency. Unless an exception applies, ITINs will not be issued based on applications supported only by notarized copies 
of documents.

Exceptions. Nonresident alien individuals applying for an ITIN in order to claim tax treaty benefits may continue to use the Form W-7 procedures in effect before June 22. That is, the IRS will issue an ITIN based on "notarized" rather than "certified" documents in those instances. In addition, in cases where a nonresident alien needs an ITIN for reasons other than filing a U.S. tax return, such as to avoid third-party withholding or to file an information return of some kind, the individual also may continue to use the former Form W-7 documentation standards, although the IRS says that it will closely examine these documents. IRS also notes that acceptance agents 
should continue to submit the Certificate of Accuracy with the applicant's documents, even though they are already certified.

The IRS also has published FAQs related to the new procedures and more details about how existing Form W-7 applications will be handled under the new procedures.

Forecast. In talks with IRS officials, college and university representatives and NACUBO staff have made it clear that the new rules could create administrative hardships for visiting students and create a duplicate layer of requirements for institutions, which already must comply with Department of Homeland Security rules for verification and tracking of foreign students and scholars via the Student and Exchange Visitor Information System. Pointing to the rigor of the SEVIS requirements in verifying and continually tracking foreign visitors on campus, campus administrators strongly urged IRS staff to consider them as a reference point prior to finalizing ITIN procedures.  

NACUBO CONTACT Mary Bachinger, director, tax policy, 202.861.2581

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