LOUISVILLE, Ky. (WDRB) – The U.S. Internal Revenue Service plans to audit the University of Louisville Foundation’s 2016 tax return following the nonprofit’s admission earlier this year that it paid “excessive” compensation to university administrators during the tenure of former U of L President James Ramsey.

The foundation was notified of the audit in a letter last week and is fully cooperating with the review, interim executive director Keith Sherman said.

Sherman said the organization does not believe its tax-exempt status is in jeopardy.

The review is specific to the foundation’s tax return for the fiscal year ended June 30, 2016. Ramsey resigned as president of the university in July 2016, and as president of the foundation in September 2016.

In a prepared statement, the foundation said the IRS “requested additional information and a meeting to discuss” a study the foundation released in May – and sent to the IRS -- concluding that Ramsey and two top aides, former chief of staff Kathleen Smith and former provost Shirley Willihnganz, were overpaid by at least $3.9 million from 2010 to 2016.

“We look forward to this opportunity to tell our story to the IRS. We want them to understand all the steps we have taken to clean up the mess,” Earl Reed, chairman of the foundation board, said in the statement.

Reed added that the foundation, whose board and management were overhauled following Ramsey’s resignation, hopes to “enlist” the IRS’ help in pursuing repayment of millions of dollars in alleged over-payments from Ramsey and Smith.

Reed said in May that the foundation needed to investigate whether it overpaid officials in the Ramsey era as part of its obligations to file accurate tax returns as a tax-exempt, charitable organization.

The foundation acts as custodian for funds donated to the university, and it manages the university’s roughly $730 million endowment.

The foundation reported the study’s results to the IRS, as well as the 2017 forensic investigation that alleges Ramsey’s administration depleted the endowment through at least $42 million in unbudgeted or excessive expenses, including a deferred compensation program that cost the organization more than $20 million.

In April, the foundation sued a handful of former officials, including Ramsey and Smith, for allegedly mismanaging the endowment.

The lawsuit, filed in Jefferson Circuit Court, has proceeded slowly and so far been dominated by issues surrounding whether the foundation is required the pay legal expenses of Ramsey and other defendants, and whether its insurance policies worth about $25 million can be tapped to cover the alleged damages.

Ramsey’s attorney, Steve Pence, denied that Ramsey was overpaid and said the current foundation board simply disagrees with decisions made by its predecessor boards.

Smith, through her attorney, has said the foundation owes her more than $300,000.

In addition to Ramsey, Smith and Willihnganz, the foundation's study initially said it overpaid former chief financial officer Jason Tomlinson by $2,601, but the foundation later said Tomlinson's inclusion was an error. 

"I am confident that the foundation will provide the information the IRS is seeking and that the IRS will conduct a thorough, fair investigation into the excessive compensation matter," U of L President Neeli Bendapudi said in a statement. "Meanwhile, our donors should know, as I do, that the foundation leadership has made the necessary reforms to ensure it is on the right path and is acting as a responsible steward of their generous gifts.”

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2018 WDRB News. All rights reserved.