MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
Executive Associate Director and Controller
Clarification of OMB A-21 Treatment of Voluntary Uncommitted Cost
Sharing and Tuition Remission Costs
This memorandum clarifies the treatment of voluntary uncommitted cost
sharing effort and tuition remission costs in accordance with OMB Circular
A-21, "Cost Principles for Educational Institutions." This clarification is consistent with the recommendation by the National Science and Technology Council (NSTC) to improve the Government-university research partnership.
In two separate sections below, this memorandum discusses the purpose
of the clarification, the background, the related issue, and the clarification
for the treatment of voluntary uncommitted cost sharing and tuition remission
costs in accordance with OMB Circular A-21.
Voluntary Uncommitted Cost Sharing
Purpose. This memorandum clarifies the treatment of voluntary
uncommitted cost sharing effort in the computation of facilities and administrative
(F&A) rates in accordance with OMB Circular A-21. Voluntary uncommitted
cost sharing effort is defined, for the purpose of this memorandum, as university
faculty (including senior researchers) effort that is over and above that
which is committed and budgeted for in a sponsored agreement.
Background. Circular A-21, section C.4, "Allocable Costs,"
states that "a cost is allocable to a particular objective (i.e., a specific
function, project, sponsored agreement, department, or the like) if the goods
or services are chargeable or assignable to such cost objective in accordance
with relative benefits received or other equitable relationship." Most
faculty organized research effort is either charged directly to the sponsor,
or is considered mandatory or voluntary committed cost sharing (i.e., cost
sharing specifically pledged in the proposalís budget or award) on the part
of the recipient. Both mandatory and voluntary committed cost sharings are
consistent with the terms and conditions of a sponsored agreement and captured
in the accounting system. Voluntary uncommitted cost sharing effort, on the
other hand, is faculty-donated additional time above that agreed to as part
of the award.
Mandatory and voluntary committed cost sharing must be properly documented
for cost accounting purposes. In addition, current Circular A-21 provisions
require that, for research projects that are funded by both the Federal
Government and a private third party (e.g., a corporation), the faculty
should properly document through reporting its compensated effort, including
mandatory and voluntary committed effort in order to allocate salaries and
associated F&A costs.
Issue. Recently adopted Cost Accounting Standards in Circular A-21
have been interpreted by some Federal Government officials to require the
assignment of a proportionate share of F&A costs to the voluntary
uncommitted cost sharing effort by either including an estimated amount in
the organized research base or by adjusting the allocation of facility costs
related to this effort.
The reporting burdens on universities and their faculty associated with
detailed recording of voluntary uncommitted cost sharing may be providing a
disincentive for the universities to contribute additional time to the
research effort. In addition, the imprecise nature of the data concerning
the amount of voluntary uncommitted cost sharing has made it difficult to
compute and use as part of rate negotiations between the Federal Government
and the universities.
Clarification. Voluntary uncommitted cost sharing should be
treated differently from committed effort and should not be included in the
organized research base for computing the F&A rate or reflected in any
allocation of F&A costs. Furthermore, such faculty effort is excluded
from the effort reporting requirement in section J.8. This treatment is
consistent with the guidance in section J.8.b (1).c, "Payroll
Distribution," that a precise documentation of faculty effort is not
always feasible, nor is it expected, because of the inextricably intermingled
functions performed by the faculty in an academic setting (i.e., teaching,
research, service and administration).
Although voluntary uncommitted cost sharing will no longer be included
in the organized research base, it should be noted that current A-21 provisions
for payroll distribution (section J.8.b) require that the apportionment of
salaries and wages must be supported by a payroll distribution system that
"will encompass both the sponsored and all other activities on an
integrated basis." The process must also identify significant changes
in the corresponding work activity. As such, when an institution reduces a
faculty memberís slevel of activities dedicated to other institutional
responsibilities in order to shift his/her activities to organized research
activities, the institution must reflect this reduction in the payroll
distribution system (as an increase to the research effort component) and in
the F&A proposals.
In addition, most Federally-funded research programs should have some
level of committed faculty (or senior
researchers) effort, paid or unpaid by the Federal Government. This effort
can be provided at any time within the fiscal year (summer months, academic
year, or both). Such committed faculty effort shall not be excluded from the
organized research base by declaring it to be voluntary uncommitted cost
sharing. If aresearch program research sponsored agreement shows no faculty
(or senior researchers) effort, paid or unpaid by the Federal Government, an
estimated amount must be computed by the university and included in the
organized research base. However, some types of research programs, such
as programs for equipment and instrumentation, doctoral dissertations, and
student augmentation, do not require committed faculty effort, paid or unpaid
by the Federal Government, and consequently would not be subject to such an
In the future, OMB and the research agencies will evaluate the impact
on committed cost sharing of this clarification memorandum.
This interpretation of the treatment of voluntary uncommitted cost
sharing is applicable prospectively to future sponsored agreements and future
F&A proposal submissions. It does not require adjustments for current
sponsored agreements or affect the negotiated rates that were agreed upon by
the Federal Government and the universities based on previous F&A
submissions. F&A rates negotiated prior to this clarification will not
be renegotiated, nor will this clarification affect the calculation of prior
yearsí carry-forward amounts.
Tuition Remission Costs
Purpose: This memorandum provides a clarification for the
tuition remission costs of graduate students charged to Federal programs in
accordance with OMB Circular A-21, Section J.41, "Scholarships and
Student Aid Costs," and Section A.2.c. "Purpose and Scope."
Specifically, it clarifies that the Circularís requirement for a "bona
fide employer-employee" relationship does not mean that the tuition
remission costs are allowable only if the graduate student is treated as an
employee for the purposes of the Internal Revenue Code and the Internal
Revenue Service (IRS) regulations.
Background: OMB Circular A-21, Section A.2.c, "Purpose
and Scope," states: "the dual role of students engaged in research
and the resulting benefits to sponsored agreements are fundamental to the
research effort and shall be recognized in the application of these principles."
Section J.41, "Scholarships and Student Aid Costs," states that
tuition remissioncosts for students are allowable on sponsored awards
provided that "there is a bona fide employer-employee relationship
between the student and the institutionÖ" This statement has been
interpreted incorrectly by some Federal Government officials to mean that,
for tuition remission costs to be allowable, students must be treated as
employees of the university, for tax purposes, which would mean that studentsí
tuition remission benefits must be treated as taxable wages. This
misunderstanding has recently generated a considerable amount of concern
from universities and Federal research agencies. A clarification of the
"employer-employee relationship" condition is necessary to correct
this misunderstanding about the relationship between Circular A-21 guidelines
and the IRS regulations.
Issue: The Federal policy on support of graduate students
participating in research projects is to provide a reasonable amount of
support (tuition remission and other support) on the basis of the individualís
participation in the project. Sponsoring agencies are supporting graduate
students who fulfill a vital role both as students and as researchers. This
policy is not contingent on there being an employer-employee relationship,
for tax purposes, between the institution and the graduate student. Rather,
it recognizes the reality that research activities are an essential component
of the individualís educational activities.
Clarification: OMB in the Circular did not intend to tie the
allowability of tuition remission costs to how they are treated for tax
purposes. However, given the misunderstanding that has arisen, a
clarification is needed. In recognition of the dual role of students
(as both students and researchers) engaged in research and the resulting
benefits to sponsored agreements (as recognized in Section A.2.c of OMB
Circular A-21) and research overall, tuition remission and other forms of
reasonable support that are associated with student status and provided to
individuals participating in the necessary work of a sponsored agreement are
allowable provided that:
(1) The individual is conducting activities necessary
to the sponsored agreement;
(2) Tuition remission and other support are provided in accordance
with established educational institutional policy and consistently provided
in a like manner to students in return for similar activities conducted in
nonsponsored as well as sponsored activities; and
(3) During the academic period, the student is enrolled in an advanced
degree program at a grantee or affiliated institution and the activities of
the student in relation to the Federally-sponsored research project are
related to the degree program.
Accordingly, tuition remission and other forms of support that satisfy
these criteria are allowable, regardless of whether the tuition remission or other form of support qualifies as wages for tax purposes.
Tuition remission and other student support shall be subject to the
reporting requirements stipulated in Section J.8, "Compensation for
Personal Services," of OMB Circular A-21, or an equivalent method for
documenting the individualís effort on a research project. Tuition remission
may be charged on an average basis. In addition, as applicable with other
types of costs charged against Federal research projects, total graduate
student compensation must still meet Circular A-21 criteria for
reasonableness and allowability.