TOM Administrator Explains Details of IRS Audit

During a work session preceding last week's Town of Mamaroneck Board meeting, the board discussed the recent settlement of an IRS tax audit conducted to determine if the town owed additional payroll taxes.

According to memorandum provided at the meeting, the town received notice of the audit in January 2010. The IRS notified the town that it was conducting a "control test to determine if persons paid as contractors receiving a 1099 form for monies received should instead have been treated as employees." Auditors working for the town reported that the IRS has expanded this practice from the private sector to an increasing number of municipalities.

Town Administrator Stephen Altieri wrote Patch to clarify the circumstances of the audit:

"The audit was not triggered by the number of 1099 employees. The IRS has begun a systematic check of municipalities to determine if those treated as contractors should be treated as employees.  The audit is completed and we have settled the matter with the IRS."

The disputed individuals included a fire department secretary, temporary recreation department employees performing specific tasks, temporary paramedics used to substitute for vacationing employees, and police department ice rink security. The tax debt for these individuals was reduced and they will be treated as employees for future filings, Altieri said. Members of the Board of Assessment Review, who deal with property tax grievance, will be treated as employees for future filings as well. Auditors also challenged payments to town prosecutors, and Altieri recommended retainer agreements to avoid future tax issues.

According to the memorandum, "the total payments identified were reduced to $48,572 and our tax liability reduced to $13,500."

"Initially, the IRS identified $110,249 in payments/wages for which additional taxes in the amount of $18,515 were due," said Altieri in the memo. After the town contested some of the findings by the IRS, payments were reduced. The town decided to not pursue the findings any further because of the "relatively small liability identified, the fact that we would need to pay both legal counsel and a tax consultant to assist in the appeal" and the time required to research additional records.