Questions remain after IRS fuss

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12:24 PM Wednesday, July 1, 2009

The news has only gotten worse for Butler County commissioners since they first learned in March that the Internal Revenue Service was wanting $500,000 as compensation for the county government failing to report employee fringe benefits as taxable income.

Since then, the county apparently has the IRS bill down to $400,000 (and hopes to negotiate it down further). The bad news? Since March, the county has learned its budget woes for 2009 have worsened considerably.

Over the past several weeks, county officials have been working overtime to compensate for an anticipated $6 million shortfall in revenue. (That’s on top of the $4.1 million the county had already trimmed from this year’s budget in anticipation of a bad economy)

The county’s IRS problems revolve around back taxes owed for not reporting expenditures of $250,000 for vehicles that county employees take home, about $580,000 for employee cell phones, and about $720,000 spent on employee uniforms in 2005-07. County commissioners have disputed the IRS finding — calling it “crazy” — because personal use of the items by county employees isn’t permitted under the county’s policies.

Nevertheless, the IRS wants its money.

Last week, staff writer Josh Sweigart reported that county officials may have been taking some solace in the knowledge that IRS Commissioner Doug Shulman is asking Congress for clarification on work-related devices, such as cell phones. “The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete,” Shulman has said.

Even if changes are made at some point, county officials acknowledge that they won’t likely be retroactive and aren’t going to stop the IRS from lightening the county’s wallet — even during this ongoing budget crisis. It only ensures that even more drastic measures — layoffs, contract concessions, possible furloughs — will be sought by commissioners, as the county’s reserve fund shrinks to pay off the IRS bill.

As we noted in March, the county’s uncomfortable encounter with the IRS only reinforces the public’s perception that county government has been spending too freely and has lacked internal fiscal controls. Questions about how this oversight occurred, why so many vehicles and phones were necessary, and — most importantly — what controls will be put in place remain to be answered.

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