Over the course of several years, the University Co-op made CEO and president George Mitchell a series of loans that amounted to $795,296.
Co-op officials say the loans were appropriate, although a nonprofit tax expert disagrees. Mitchell said the loans were made against his deferred bonus compensation more than a decade ago.
Michael Granof, chairman of the Co-op’s board of directors, said the board wanted to give Mitchell an incentive to improve sales at a time when the Co-op wasn’t generating adequate revenue. The board decided to provide that incentive through bonus compensation.
“In order to preserve the cash, which the Co-op didn’t have very much of at the time, it set it up so that the bonus would be deferred,” Granof said. “Nonetheless, he was permitted to borrow against it.”
The loans to Mitchell were not problematic for the Co-op during its annual audits, Granof said. Interest on the loans Mitchell took out against his deferred bonus pay eventually equaled slightly more than $1 million, an amount equal to the deferred compensation he was owed. In Mitchell’s words, the Co-op “needed to figure out some way to get it off the books since it’s equal.”
Marilyn Phelan, a nonprofit tax expert and Texas Tech law professor, saw the loans as cause for concern.
Loans — made under the premise of having to pay the money back — are usually considered nontaxable income, according to Phelan.
Theoretically, Mitchell could receive the cash from the loans without paying taxes on it, Phelan said.
“He will not pay any income taxes until the organization discharges its obligation to pay him the deferred compensation,” Phelan said.
“However, he has received it all in the form of borrowing the money from the organization.”
Mitchell said his pay was approved by a team of lawyers and he did not want to release his personal income tax information.
“I would have had to pay taxes if I took it out,” Mitchell said of the deferred compensation.
He refused to say whether the loan status of the deferred compensation would affect its tax status.
Granof said Mitchell’s personal income taxes are not the Co-op’s fiscal responsibility.
Printed on Friday, November 16, 2012 as: Series of loans to Co-Op CEO causes concerns