The Board of Regents executive committee approved a $22,500 salary increase for President Timothy Caboni – enough to offset a tax liability the IRS says he must pay on the value he gets from living in the WKU’s owned presidential residence on Chestnut Street.

The pay increase was approved by the Board of Regents at its Jan. 31 meeting. Regents said they were obligated to pay Caboni under his contract with the university for the taxes he must pay for the benefit of a free home with paid utilities.

Director of Media Relations Bob Skipper said the increase will not take effect until approved by the full board. The next full Board of Regents meeting is scheduled for March 6.

Caboni’s base salary is $400,000, according to his initial employment contract.

The move comes after the federal Internal Revenue Service determined that Caboni should be taxed for the fair-market value of living for free in the home as if it were income.

The increase offsets additional taxes Caboni must pay for the value of living in the residence, as well as for the higher rate of pay, said Kristi Smith, interim chief financial officer.

“Any increase received is to bring Dr. Caboni’s net pay back to the original amount before any tax calculations are figured in relation to the taxable benefit,” Smith said in an email. “This increase also keeps WKU in compliance with the contract terms.”

Caboni should not have a tax liability on the presidential residence, since it is owned and operated by WKU, according to the contract, which requires him to live in the home.

Smith said a taxable benefit is defined by the IRS as “a form of employee pay other than cash wages for the performances of services.” Generally, there is a three step test to determine if something is a taxable benefit, Smith said.

Smith said an asset is considered a taxable benefit if it is located on the property of the employer, if the employer is required to accept housing as a condition of employment and if the employee is contractually obligated to use the benefit.

“Since the presidential residence has been identified as taxable, the annual rental fair market value of the house will be added to Dr. Caboni’s pay and will be taxed at the same level as cash wages are taxed,” Smith said.

Smith said this is different from a pay raise, because a raise describes an increase in cash wages, whereas this increase is being done to ensure Caboni’s net pay remains the same.

“The net pay is lower because the taxes associated with the house are deducted from Dr. Caboni’s cash wages,” Smith said. “At this point, Dr. Caboni has incurred tax liability related to residence on campus.”

Smith said because of this, the university is obligated to fix this tax liability since not doing so would violate WKU’s contract with Caboni.

Reporter Jack Dobbs can be reached at jack.dobbs469@ topper.wku.edu. Follow him on Twitter at @jackrdobbs.