-5-
Bifurcated Salary
The College of Notre Dame waived tuition for students whose
parents were college employees. Petitioners could not take
advantage of the tuition waiver benefit because they had sons and
the College admitted women only.
Mr. Marzullo wanted to receive a benefit that was similar to
the tuition waiver. He also wanted to structure his compensation
package with the College to mitigate, at least to some degree, the
loss of benefits he had been receiving from his previous employer.
To achieve these results, Mr. Marzullo devised a bifurcated salary
arrangement for himself, in which only a portion of his income was
paid as salary and reported by the College to the Internal Revenue
Service (IRS) on a Form W-2. The balance of his compensation was
transferred to an accounts payable account that normally was used
for nontaxable employee reimbursement. That part of his
compensation (which was not reported to the IRS on a Form W-2) was
paid to Mr. Marzullo or to third parties for Mr. Marzullo's
benefit. Mr. Marzullo used the unreported money to pay for such
things as credit card bills for a family vacation, bills for his
life and disability insurance premiums, and his sons' tuition. The
payments classified to the accounts payable account which were
omitted from petitioners' Federal income tax returns were:
Year Amount
1986 $12,322
1987 29,296
1988 21,542
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Last modified: May 25, 2011