Missoula County must pay the Internal Revenue Service $20,600 in penalties and taxes after an audit of fiscal year 2016 found errors in employment and payroll-related activities.
The largest portion involves $17,160 in penalties for failing to file 66 proper forms. In addition, the federal agency took issue with the way the county reimbursed expenses for two boards; how substitute judges in the Justice of the Peace office and election workers were compensated; and the amount of taxes paid as part of an employment settlement. Altogether, those are costing the county about $3,500 in taxes in addition to the penalties.
“We don’t like the fact that we have to pay money to the IRS; nobody likes that,” said David Wall, the county auditor. “But we’ll come out of this doing things better. We’ll put in safeguards.”
The $17,160 penalty came for not having the proper forms for vendors with whom the county does business, including those at the Western Montana County Fair. Anyone the county pays more than $600 in a year is supposed to submit a W-9 form; at the end of the tax year, the county sends them the IRS Form 1099, which reports the income to the federal government.
Wall said 33 vendors failed to submit the W-9, and didn’t get the 1099 from the county. Each instance prompted a $260 “failure to file” penalty, as well as another $260 “failure to furnish” penalty.
In addition, even if a person didn’t file a W-9 — like many of the fairground vendors — the county went ahead and paid the bills. That won’t happen again, Wall said.
“We set it up so the accounting system will flag us showing if someone doesn’t submit a W-9,” Wall said. “We can let the department or accounts payable know that the vendor has no W-9, we will not pay the bill. Then at the end of the year we can send the 1099 to them.”
After Commissioner Dave Strohmaier asked if there was any way to get the penalty lowered, Wall explained that they already managed to talk the IRS down by about $2,000, and the federal agency wouldn’t budge further.
“In this they’re right. We messed up,” Wall said.
In a separate situation, the county considers about 700 election workers and a handful of substitute Justice of the Peace judges to be independent contractors, since they only serve occasionally. However, they were being paid through the county’s employee payroll system, which the IRS said made them appear to be county employees, eligible for sick pay and vacation days.
That mistake cost the county $640 in unpaid taxes. The fix, Wall said, is to pay them as temporary employees so they don’t accrue benefits but still are in the payroll system.
Yet another problem involved payments made to the elected members to the Missoula Conservation District and East Missoula Sewer Board.
The two boards’ members are reimbursed for items like mileage and meals, but it wasn’t reported on the county books as such; instead, it looked like payments. The IRS said the $18,229 paid to board members needed to be taxed, which resulted in a $1,946 expense to the county for the taxes.
“They’re not county boards but are elected boards, so we serve as their bank,” said Chris Lounsbury, the county’s chief operating officer.
According to Wall, it wasn’t clear to the IRS auditors what those payments were made for, so it looked like taxable income. Erica Grinde, the county director of risk management and benefits, said they can’t ask the board members to go back to search for receipts, but will ensure those are submitted in the future.
“We’re having a conversation with both those boards to help them with documentation,” Grinde said, adding that the penalties and taxes owed to the IRS were treated as any claim against the county, with the money coming out of the risk fund. The bill was due Dec. 6, so the county paid it earlier this week.
Wall doesn’t expect this will affect other boards in Missoula County because they don’t receive the same sort of payments or they were specifically listed as mileage reimbursement.
The final tax error involved the county not taking out enough taxes as part of a 2016 employee settlement, and needing to add $847 more.
“So those were errors in not taking out enough taxes,” Wall said.
Wall said he’s not sure why they were audited.
“I’m not sure if something flagged it,” Wall said, adding that he doesn’t know about any additional audits under way.