IRS places tax lien on school system

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By Tia Lynn Ivey

managing editor

The Internal Revenue Service has placed a federal lien on the Morgan County School System’s property because of $700,000 in unpaid taxes from the first quarter of 2015.  With penalties and interest, the amount owed by the school system to the IRS is over $1.1 million.

“While we are disappointed that the IRS chose to place a lien on the school system, this course of action is a routine action by IRS in resolving disputes to protect any potential IRS interest. The school system has already filed an objection to the penalties and has already filed a request for penalty abatement,” explained James Woodard, superintendent of schools. “A lien means a public record is created that the IRS intends to protect its interest, if any, in regards to any unpaid interest and penalties.  The filing of a lien also allows the school system to proceed with a Request for a Collection Due Process or Equivalent Hearing – which has already occurred.  Currently Morgan County School System is waiting to hear from IRS on the status of the appeal.”

The lien was filed on November 8, 2016.  “The reason for the tax lien was assessments of penalties related to late filing of the April 2015 tax withholding and alleged non-filing of required quarterly reports and non-payment of tax withholding in September and October, 2015,” said Woodard. “Because we have never experienced issues with the IRS in the past, we have retained an attorney specializing in IRS disputes to represent Morgan County School System and to file all appropriate appeal documents. While the appeal documents have been filed, the attorney has advised that the appeals process could take as long as six months.”

According to Woodard, an oversight was made when filing taxes in 2015, during a transition of finance personnel.

“I want to affirm the citizens of Morgan County that our taxes are current and have always been paid. However, due to changes in personnel in Spring of 2015 an initial error was made and subsequent issues with IRS followed,” said Woodard. Libby Whitaker, the school systems’ Chief Financial Officer that took over in 2015 has resigned as of January 31. The school system declined to comment on the reasons for her resignation.

“Our stance has been that we believe the first penalty was a non-intentional error on our part and we believe we have reasonable cause for the IRS to waive the penalties and any associated interest.  We believe the remaining penalties are not our fault and we are using the hearing/appeal process to verify that our normal routines and process are followed.  We have always intended and continue to pay our taxes and file appropriate reports.”

Woodard listed the crux of the school’s system appeal to the IRS, citing that this is the first time the school has made tax-filing mistake, that there is a “reasonable cause” for the mistake, due to vacuum created during the transition of finance directors at the time, and “undue hardship,” noting that the additional fines and interest would be detrimental to the financial stability of the school system.

According to Woodard, the IRS has also made a mistake by imposing some of the fines. “Tracking documents and quarterly reports indicate that the school system followed normal routines and practices in complying with IRS reporting requirements.  However, the IRS does not acknowledge that Morgan County School System properly filed reports and have therefore applied penalties and interest,” said Woodard.

Woodard believes the issue will be resolved and the lien removed once the school system’s appeal is reviewed. A new CFO will be announced at the Morgan County Board of Education’s (BOE) next regular meeting on Monday, Feb. 13 at 6 p.m. held in the conference room at 165 East Avenue in Madison.

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