Friday, January 27, 2023
Foreign Gift and Contract Reporting Deadline
The U.S. Department of Education (Department) established rules requiring some institutions of higher education (institutions) to file disclosure reports regarding monies obtained from foreign sources. Section 117 of the Higher Education Act of 1965, 20 U.S.C. § 1011f, requires institutions to file a disclosure report with the Department if (1) the institution is owned or controlled by a foreign source, or (2) the institution receives gifts from or enters into contracts with a foreign source for over $250,000 in the aggregate for a calendar year. The Department does not prohibit institutions from taking foreign money, but it mandates accurate and transparent disclosures of sources and amounts.
Disclosure reports—when required—are due on January 31 and July 31 of each year for the preceding six-month period. The next date institutions must submit disclosure reports to the Department is Tuesday, January 31, 2023.
Institutions Required to File Disclosure Reports Under Section 117
An institution (and each campus of a multi-campus school) must report foreign sources of income information if the institution:
- Is legally authorized to provide a program beyond the secondary level within a state;
- Provides a program that awards a bachelor’s degree or a more advanced degree, or provides at least a two-year program acceptable for full credit toward a bachelor’s degree;
- Is accredited by a nationally recognized accrediting agency; and
- Is extended any federal financial aid (directly or indirectly through another entity or person) or receives support from the extension of such aid to any of the school’s sub-units.
Institutions that do not have any foreign gifts and contracts exceeding $250,000 in the aggregate are not required to file a disclosure report.
Data That Must Be Reported Under Section 117
Institutions required to disclose foreign sources of monies to the Department must include the following information in their report:
- For gifts received from or contracts entered into with a foreign source other than a foreign government, the aggregate dollar amount of such gifts and contracts attributable to a particular country. The report shall also disclose the country to which a gift or contract is attributable. The country to which a gift is attributable is the country of citizenship, or if unknown, the principal residence for a foreign source who is a natural person, and the country of incorporation, or if unknown, the principal place of business, for a foreign source which is a legal entity.
- For gifts received from or contracts entered into with a foreign government, the aggregate amount of such gifts and contracts received from each foreign government.
- In the case of an institution which is owned or controlled by a foreign source, the identity of the foreign source, the date on which the foreign source assumed ownership or control, and any changes in program or structure resulting from the change in ownership or control.
Additional disclosures are required for restricted and conditional gifts:
- For such gifts received from or contracts entered into with a foreign source other than a foreign government, the amount, the date, and a description of such conditions or restrictions. The report shall also disclose the country of to which a gift or a contract is attributable.
- For gifts received from or contracts entered into with a foreign government, the amount, the date, a description of such conditions or restrictions, and the name of the foreign government.
Definitions under Section 117
Contract: A contract in Section 117 means any agreement for the acquisition by purchase, lease, or barter of property or services by the foreign source, for the direct benefit or use of either of the parties.
Gift: The term “gift” means any gift of money or property.
Foreign Sources: Section 117 defines four “types” of foreign sources:
- A foreign government, including an agency of a foreign government;
- A legal entity, governmental or otherwise, created solely under the laws of a foreign state or states;
- An individual who is not a citizen or a national of the United States or a trust territory or protectorate thereof; and
- An agent, including a subsidiary or affiliate of a foreign legal entity, acting on behalf of a foreign source.
Section 117 states that the country to which a gift or a contract is attributable to “the country of citizenship, or if unknown, the principal residence for a foreign source who is a natural person, and the country of incorporation, or if unknown, the principal place of business, for a foreign source which is a legal entity.”
The Department has stated that institutions must conduct “reasonable due diligence” when they receive the benefit of a contract or gift from any entity to determine whether the gift or contract is from or with a foreign source.
Valuation: Contracts must be valued when “enter[ed] into.” Institutions should use a reasonable valuation methodology based on information available at the time the contract is entered into. Institutions are not required to use a specific methodology or approach to determining fair market value. Institutions are required to report in-kind exchanges as part of a gift or contract, such as textbooks or materials for a specific program. The value of the property should be the fair market value of the property.
Enforcement and Penalties Under Section 117
Section 117 is enforced by the Department’s Office of General Counsel. In addition, the Department’s Office of Inspector General, the U.S. Department of Justice, and the Federal Bureau of Investigation have participated in investigations. In recent years, the Department has taken an aggressive enforcement posture and has opened investigations involving several prominent universities that were made public in the Federal Register. These institutions were required to produce documents relating to IRS records, communications with foreign entities, and activities taken to comply with Section 117.
Penalties for noncompliance are potentially significant. Whenever it appears an institution has failed to comply with the law, the Department may request the Attorney General to commence an enforcement action to compel compliance and to recover the full costs to the United States of obtaining compliance, including all associated costs of investigation and enforcement. Furthermore, a person may be subject to fines and imprisonment if they knowingly falsifies or conceal a material fact, makes any materially false or fraudulent statement or representation, or makes or uses any document that contains a materially false or fraudulent statement.
As of June 22, 2020, institutions must report Section 117 information using the new reporting system, available at https://sa.ed.gov/cas/CASWeb/pages/Authentication.faces. Previously institutions reported this information using question 71 on the E-App. Batch reporting is not permitted and institutions cannot aggregate transactions for reporting purposes. Users authorized by an institution’s Primary Destination Point Administrator (PDPA) are permitted to submit disclosure reports on behalf of an institution. In addition, third parties, including attorneys and consultants, are permitted to submit disclosure reports on their behalf.
Brandon Sherman advises postsecondary institutions, accrediting agencies, and education investors on matters pertaining to federal financial aid eligibility, accreditation, cybersecurity, Title IX, and foreign gift and contract reporting.
Maynard is a full-service firm with attorneys experienced in all regulatory and operational aspects of higher education, including federal and state oversight, accreditation, cybersecurity, transactions, and real estate concerns. Please let us know if we can be of assistance.
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