Durham County

Congress throws flag on Duke for paying Krzyzewski and Cutcliffe as much as it does

Duke coach Mike Krzyzewski calls a play during a Nov. 17 victory over Southern University at Cameron Indoor Stadium.
Duke coach Mike Krzyzewski calls a play during a Nov. 17 victory over Southern University at Cameron Indoor Stadium. Chuck Liddy

There’s a provision buried in the rewrite of federal tax law Congress passed on Wednesday that, for Duke University, might as well be called the “keeping Coach K and David Cutcliffe on the payroll penalty.”

It levies on universities like Duke a 21 percent tax on every dollar above $1 million that they pay their five best-compensated employees who didn’t earn the money as a practicing physician or veterinarian.

That in theory means the Durham institution has to pay the Internal Revenue Service because men’s basketball coach Mike Krzyzewski was earning about $7.4 million a year as of 2015 and football coach Cutcliffe was getting nearly $2.6 million.

What Duke President Vince Price earns isn’t public record yet, but considering that his predecessor, Richard Brodhead, received about $1.2 million in 2015, it’s entirely possible Duke will have to pay a surcharge on his salary too.

Two executives in the university’s investment office, Neal Triplett and Alice Gould, might round out the quintet, presuming they’ve maintained their slots in Duke’s payroll hierarchy. That year they received nearly $3.0 million and $1.4 million respectively, according to a roundup by the Chronicle of Higher Education.

The executive-pay provision is one hit at universities that survived a House-Senate conference about the tax package that removed others, most notably a House proposal that would have sharply raised taxes on graduate students who receive tuition waivers for working as teaching or research assistants.

Another hit was a section that levies a 1.4 percent tax on endowments at wealthy private universities like Duke.

For now, reaction from the Allen Building is muted because officials are waiting to see how the IRS writes regulations to flesh out the bill’s intentions and govern agency operations.

“There is still a lot of confusion around how provisions like the endowment tax and the excise tax on salaries will be implemented that we hope will be clarified in the coming weeks,” said Michael Schoenfeld, Duke’s vice president for public affairs and government relations.

Congressional advocates of the two provisions haven’t made any secret of their desire to prod well-heeled universities to spend down their endowments and address executive pay.

A Duke School of Law tax expert, Larry Zelenak, said the compensation provision parallels another in the bill for for-profit, publicly traded corporations. It applies to what he termed “a comparable group of employees” and likewise targets salaries higher than $1 million, albeit by saying the overage isn’t tax deductible rather than by directly taxing it.

Don’t be fooled – the provision doesn’t mean Coach K or Cutliffe will personally pay more in taxes on next year’s salaries. Their employer’s the one on the hook for the excise tax on their earnings over $1 million, even as Congress is lowering the top-bracket tax rate to 37 percent and making other changes that lower taxes on business and investment income.

“So Duke takes the hit, not Coach K, at least in the short term,” Zelenak said.

The professor sees the provision’s true impact playing out long-term, either by putting “some downward pressure on coaches’ salaries” in general or at least causing them “to rise slower than they otherwise would.”

Zelenak added that he thinks public universities like UNC-Chapel Hill “are not subject to this,” but added that there’s room for uncertainty on that.

“The drafting on that point is less than reader-friendly, even by tax law standards,” he said.

Ray Gronberg: 919-419-6648, @rcgronberg