North Miami’s October Surprise?

What do the cities of Edmond, Oklahoma, St. Ignace, Michigan, Deerfield Beach, Florida, Dana Point, California, Vernon California, Huntsville, Alabama, Tucson, Arizona, Nitro, West Virginia, Schenectady, New York, Itta Bena, Mississippi, Ventnor, New Jersey, Gallatin, Tennessee, Walnut Creek, California, Lorain, Ohio, and North Miami, Florida, have in common?

They’ve all been audited by the IRS.

Everyone in North Miami and beyond seems to be so downright shocked – SHOCKED! I tell you! – that the IRS has “broadened their investigation” of the City’s finances for the year 2012, let’s take a look at the real implications of this shocking new development.

Many municipal audits, such as the ones that took place in Edmond, Oklahoma and Tucson, Arizona were initiated as a “routine examination of municipal debt issues to determine compliance with federal tax requirements.”

In Vernon, California, the “IRS found that the $419 million bond issued by the city’s Light and Power Department to purchase a 15-year supply of natural gas is in compliance with IRS regulations. Auditors said the city’s bond is indeed tax exempt.”

The lucky IRS Audit Lottery Winner, Huntsville, Alabama, got a clean bill of health from the U.S. Department of Treasury after cooperating with the IRS during several months worth of “digging into a $50 million bond issue from 2007 that paid for a slew of public improvements in the downtown area.” Huntsville Finance Director Randy Taylor breathed a sigh of relief and exclaimed, “”Given the complexity of this, in my opinion the IRS decision is just as significant as our triple-A credit rating from Wall Street.”

Coming from South Florida, it’s certainly refreshing to see some cities take their financial health seriously.

Some of the other cities I listed, such as St. Ignace, Michigan, and Lorain, Ohio, were targeted for incorrectly classifying city employees and certain vendors as independent contractors. Many of these cities got the attention of the IRS because of non-compliance with unclear tax policies or just honest, albeit stupid, mistakes.

In St. Ignace, Michigan, the St. Ignace News reported, “This is the first IRS audit the city has had in at least 25 years, and the process was a learning experience, said Mrs. Vonderwerth. Based on the audit, the city now is updating its contractor files, making sure the proper tax forms have been completed and filed. The document of most interest to the IRS, she said, is the 1099 form, which reports the amount paid to an independent contractor.”

Lorain, Ohio’s audit “was triggered by how the city paid Lorain Police Department Auxiliary officers for their work,” according to The Mourning Journal. The officers received W-2 forms when they worked for the city, but when they worked off-duty, they received 1099 forms. “The IRS ruled the auxiliary officers should be paid like city employees,” making their pay subject to withholding and other “allowances that were not included” in W-2 forms.

Closer to home, the City of Deerfield Beach, Florida, lost its “in-house” City Attorney who, for nineteen years, had an office at City Hall while being paid as an independent contractor instead of a full time employee. He paid his staff “out of a lump sum he was paid by Deerfield Beach,” according to the Sun-Sentinel. During that time he was also legal counsel for the City of Parkland and the Broward County Planning Council. The article stated, “The move comes as a result of a comprehensive audit of the 2007 tax year, part of a statewide enforcement effort by the IRS.”

In the case of Dana Point, California, for example, the IRS determined that “recreation class instructors were improperly classified as independent contractors and should have been classified as employees for federal employment tax purposes.”

The IRS turned up nothing scandalous – or newsworthy – in any of those cases.

In Walnut Creek, California, the city filed an appeal to contest the Internal Revenue Service’s finding that it owed $72,000.00 in withholding taxes. City Attorney Steve Mattas stated, “In general, the city disagrees with the initial findings of the IRS. We do not know why the IRS is focusing on Walnut Creek and its practices. We understand the IRS has reviewed practices in other cities. The amounts here are very small and the city’s practices are long-standing and consistent with those of other California cities.”

Maybe it was an election year in Walnut Creek. Just saying.

In Nitro, West Virginia, the city opted to pay $12,000.00 in “overlooked payroll taxes and penalties” after the IRS examined “the case of a Nitro firefighter who was being paid while off duty to run the city pool,” and also found that “the city had made incorrect tax claims for uniform deductions and filed incorrect paperwork for several employees.” The city’s treasurer claimed that he didn’t agree with some of the findings but that it would “be cheaper just to pay the back taxes and penalties” than fight the IRS.

Pity, instead, the poor town of Itta Bena, Mississippi, which was slapped with an IRS tax lien to the tune of $200,000.00. The city officials who mismanaged this 1.5 square mile piece of real estate, with its population of slightly over 2,000, were accused of failing to pay “Medicare, Social Security and income taxes withheld from employees’ paychecks” from January, 2012 through March, 2013. Like a kid trying to hide a broken vase from his mother, Itta Bena City Clerk LaCheronda Spivey didn’t bother to tell the mayor about the IRS audit until it was over, claiming she didn’t want to bother her.

Just imagine a lowly city official trying to pull a stunt like that in South Florida. Oh, the outrage!

As you can plainly see, North Miami is only one in a long line of cities targeted by the Internal Revenue Service.

In reality, as Ventor, New Jersey, City Solicitor Amy Weintrob said, “it is not unusual for municipalities to be audited by the IRS.”

It’s a known fact that the IRS can be relentless. They have an army. And they’re ruthless.

Yet, the way some people are reacting to the North Miami audit, you’d think that hellfire and brimstone have bubbled up from the depths of the underworld.

Local 10 has been covering this story and reported that the IRS expands investigation into City of North Miami by sending the city “a 15-page letter requesting more internal documents.”

And?

If you have ever received correspondence from the IRS, you already know that this massive federal government agency is the biggest violator of the Paperwork Reduction Act probably in the history of the United States of America. With the launch of each new investigation, the Internal Revenue Service can kill more trees than all of the lumberjacks in California. A “15-page letter” is mere child’s play to the IRS.

This is not to say that the travel habits of Councilwoman Marie Steril and Assistant City Manager Lumane Claude shouldn’t be investigated. Their now legendary trips to Haiti, for which they were generously reimbursed by the City, have always been questionable.

Former Chief of Police Marc Elias, who was dragged to Haiti by suspended Lucie Tondreau as her personal security guard, has already answered to these charges. That’s hardly news. The Chief repaid $3,000.00 of that money – not because they were personal expenses, but because they hadn’t been approved in advance.

As reported by Local 10, “Just last month, the IRS launched its investigation with a 20-page request regarding 20 employees and eight outside venders. The IRS asked for employee tax forms, fringe benefits and retirement plans. The IRS also asked for the city’s 2012 federal tax returns.”

This type of investigation by the IRS is no different from those launched on cities all over the country since 2008, when it seems the IRS went on an audit spree.

Contrary to the excited whoops from the peanut gallery, there is nothing either new or improved about the IRS expanded investigation, such as the one giving North Miami City Manager Aleem Ghany a massive migraine as we speak.

A similar expanded investigation took place in Gallatin, Tennessee, which resulted in that city having to pay “$27,340.24 in federal income taxes, Social Security taxes and Medicare taxes for the two-year period on May 6.” Apparently, Gallatin failed to report or pay taxes on fringe benefits like take home vehicles, uniform allowances and “gift cards for service awards and Christmas luncheon door prizes.”

I don’t know a single person who welcomes the IRS at his doorstep. This most feared of all government agencies leaves no stone unturned when going after suspected tax evaders. No amount of tax money ostensibly owed is too small for the IRS to justify spending thousands, or even hundreds of thousands of tax dollars in order to retrieve what the Internal Revenue service deems the rightful property of Uncle Sam.

The IRS had Schenectady, New York city employees shaking in their city-reimbursed boots … literally … when it audited the way “unionized public works employees” are compensated for “on-the-job footwear.” The mayor was quoted as saying, “…City Hall has not reported the money as income to the IRS. It appears what the city should be doing is either reporting the money — about $100 per year — as taxable or having employees submit a receipt for the boots and be reimbursed.”

Municipal audits by the Internal Revenue Service have become so commonplace, the New York State Association of Counties (NYSAC) has published articles “intended to help counties understand the IRS requirement for reporting and taxing of certain employee benefits and to provide general guidance in the administration of these benefits and employment and contracting situations.” In its December 13, 2010 article, IRS Audits Tagging Counties for Fines and Back Taxes, NYSAC warns, “The primary focus of the IRS has been in two areas: the taxability of employer provided equipment and reimbursements, and worker classification and independent contractor status.”

If cities weren’t a big enough target for the IRS, consider this. Last year the agency started auditing the books of “every single tribe in the country,” according to John Dossett, general counsel for the National Congress of American Indians. As such, he’s warning tribes in Alaska of the possibility that audits are coming. Dossett told the Juneau Empire, “It doesn’t make any sense that they would go to Alaska. The tribes in rural Alaska just don’t have much going on, but we’ve been very surprised that they’ve been auditing all the South Dakota tribes and they’re really impoverished. So, who knows what they’re going to do.”

And somehow the Tea Party thought the IRS was saving its own special brand of “love” for them.

There’s an old adage that the only sure things in life are death and taxes. Being investigated by the IRS makes some people consider the former more preferable. And, in some cases, death by natural causes is quicker than an IRS audit.

While many IRS audits are initiated by obvious red flags on tax returns, the bulk of them are quite probably random. After all, the Department of Treasury’s job is to grab as much of your money as it can. Plus, I suspect that far too many Internal Revenue Service Agents, who I prefer to think of as accountants with badges, get a kick out of screwing with people.

In the case of municipalities, as I’ve pointed out, audits are typically based on questionable employee and vendor payments. I also imagine that many of such audits have been launched due to “tips” received from “concerned citizens.”

Especially during election years.

As you can see, municipal IRS audits are fairly common across the country. (Yes, Google is your friend.) North Miami’s audit is no different from any number of those that have taken place in cities large and small over the last few years.

I do find it rather odd that the IRS commenced its audit with the year 2012, which coincides with the last year that Andre Pierre was the mayor. By all accounts (not just mine), Andre’s was one of the most corrupt administrations in the history of North Miami. However, he was only one of five sitting elected officials, and not even the one whose travel reimbursements are in question. That honor belongs to Marie Steril, who is still in office.

Intelligent North Miami residents – and especially voters – need to ask themselves some serious questions, like …