University of Louisville Foundation's tax exemption could be at - WDRB 41 Louisville News

University of Louisville Foundation's tax exemption could be at risk, director testifies

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Grawemeyer Hall, University of Louisville campus Grawemeyer Hall, University of Louisville campus
Keith Sherman, interim executive director of the University of Louisville Foundation, spoke to the Rotary Club of Louisville on Oct. 5, 2017. Keith Sherman, interim executive director of the University of Louisville Foundation, spoke to the Rotary Club of Louisville on Oct. 5, 2017.

LOUISVILLE, Ky. (WDRB) --  The University of Louisville Foundation’s status as tax-exempt, charitable organization could be at risk because of years of inaccurate disclosures to the U.S. Internal Revenue Service about the foundation’s compensation of former U of L President James Ramsey and other top officials, the foundation’s interim executive director testified under oath in October.

In its annual public tax return, the foundation routinely said its payments to Ramsey and other officials were based on compensation studies when, in fact, no studies were done, foundation interim executive director Keith Sherman said.

Sherman made the statement while testifying as a witness during an Oct. 10 hearing to determine whether the foundation’s former chief financial officer, Jason Tomlinson, was entitled to unemployment benefits following his firing in July. A transcript of the hearing was filed in federal court records last week as part of Tomlinson’s lawsuit against the foundation.

In a statement to WDRB News, Sherman said the foundation is “not aware of any imminent jeopardy” to its tax-exempt status; that its attorneys have been communicating with the IRS; that the organization currently complies with IRS rules; and that the foundation has hired a consultant to examine its compensation.

An IRS spokesman did not respond to a request for comment.

The loss of tax-exempt status would be catastrophic for the foundation, which receives donations on behalf of the university and manages U of L’s nearly $800 million endowment.

The foundation has not told donors that its status may be at risk, nor has its board discussed any such threat during the public portion of its meetings this year.

While penalties are possible, it would be "very unusual" for the IRS to revoke tax-exempt status over a discrepancy about whether the foundation had compensation studies, said Duane Tarnacki, a Detroit lawyer who represents tax-exempt organizations.

“Even if it were intentional, I don’t know that that would rise to a level where the IRS would take that drastic an action,” Tarnacki told WDRB News.

Ramsey, who was president of the university and the legally separate foundation for 14 years, resigned both positions under pressure in 2016, in part because of the disclosure of millions of dollars in extra compensation he and other top administrators received through the foundation.

A forensic investigation released in June showed Ramsey’s administration depleted the university’s endowment to fund at least $42 million in “unbudgeted or excessive” spending, including a “deferred compensation” program through which nine administrators received nearly $22 million.

The foundation pay helped make Ramsey one of the highest-paid university presidents in the nation. His total pay, including from the university, averaged nearly $1.8 million from 2010-2016 -- as much as $3 million in a year (2012), according to the forensic investigation. 

The university and foundation boards have held countless closed-door discussions about potential litigation stemming from the June investigation, though nothing has materialized to date.

During the Oct. 10 hearing, Sherman said the forensic report raised questions about whether there was “excessive compensation,” which led him to discover the potential discrepancy with the foundation’s annual tax returns.

Since at least 2013 or 2014, Sherman said, the foundation had told the IRS that it had “studies or surveys” to support its compensation of administrators.

“(B)ut in fact for several years there were not compensation studies done,” Sherman said, according to the transcript. “So that as a result has – at least for now there’s a question about the 501(c)3 – 501(c)3 status of the Foundation with the IRS.”

On its last five annual disclosures to the IRS, the foundation has checked a box indicating that Ramsey’s pay was based on a “compensation survey or study,” according to a review by WDRB News.

The organization also routinely repeated language on each year’s form saying Ramsey’s pay was determined through “data gathering and analysis of compensation at comparably sized organizations along with benchmarking against other qualified officials in similarly situated positions.”

In some years, the foundation used the same language to describe how it determined pay for other officials besides Ramsey.

For example, in the form covering the fiscal year ended June 30, 2012, the foundation said the pay of Kathleen Smith, Ramsey’s former chief of staff and the foundation's former assistant secretary, was informed by the same process involving “data gathering and analysis.”

Even the all-new, reform-minded board that took control of the foundation in January attested that there was a compensation study and repeated the same language about data gathering in the organization’s tax form for the year ended June 30, 2016, which was not filed with the IRS until May 15, 2017.

Sherman, who became the foundation’s interim director in December 2016, declined to comment on why the foundation made those representations.   

Reach reporter Chris Otts at 502-585-0822,, on Twitter or on Facebook. Copyright 2017 WDRB News. All rights reserved.

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