An IRS finding handed down January 31st will surely be the talk of the next meeting of the Township Officials of Illinois.
It says that heretofore fringe benefits, such as the Grafton Road Commissioner’s vehicle and the reimbursement for dinners at the McHenry County Council of Governments, are income for Federal tax purposes.
And, since the state tax code is built upon the national one, probably subject to state income tax as well.
The Internal Revenue Service writes that Grafton Township owes the Federal government $2,030.36 for 2010 for income, Social Security and Medicare taxes.
“Fringe Benefit Issues” is what the Internal Revenue Service investigator was looking at.
A topic subject to a tirade by Trustee Gerry McMahnon at one of the last meetings I attended was the taxability of reimbursements for dinners at the McCOG. [I have to tell you, except for the volume of his voice, he seemed to be making sense.]
But the IRS Specialist disagreed.
The “audit,” for lack of a better term, specifically addressed this topic:
“In 2010, the elected officials and trustees of the Township received a stipend varying from $26 to $40 per month to attend monthly dinners for the McHenry County Council of Governments. The Township does not require these members to attend these meetings. The total amount of stipends issued to all officials and trustees was $1,300 for the year. These stipends were provided under a non-accountable plan.”
If I am interpreting the documents correctly, the Trustees, in toto, will owe taxes on an additional $729 because of the McCog dinner reimbursements.
Road Commissioner Jack Freund had similar $200 of non-accountable reimbursements, Supervisor Linda Moore $253 and Clerk Harriot Ford $118.
Freund was also cited for $3,125.70 which he received for “medical reimbursements made to the elected official. However, there was insufficient substantiation provided to receive reimbursement. Thus, the payment falls under a non-accountable plan.”
Freund was further cited for getting reimbursement for his spouse’s travel expenses. This included $120.56 for a number of meals, plus “a $35 spouse fee for the conference.”
Township Road Commissioner Jack Freund’s Ford F250 pickup truck was the subject of the final finding.
Purchased on December 8, 2010, “for the Road Commissioner’s use. The vehical was inspected by the Specialist and the vehicle is not deemed to fall into the category of a Qualified Nonpersonal Use Vehicle.
“There was no adequate substantiation of business uses v personal use of the vehicle.
“Therefore, the automobile lease value for this vehicle is $7,250 (see tables in Publication 158). As it was used for 23 days in 2010, the calculation is as follows:
- Annual Lease Value = $7250
- Days of Use in 2010 + 23.365
- %7,250 X (23/365) = 456.85
Also targeted by the IRS were meals provided by Assessor Bill Ottley’s office when employees were not away overnight. Called “Day Meals” by IRS Examiner John Lauer, the reimbursements of those and non-overnight meals for Ottley and Moore totaling $369.28 have been deemed taxable.
Also mentioned are uniforms costing $480.01, but detail is not given regarding the employees affected. The report sys that “under an nonaccountable plan” are considered “wages and are treated as supplemental wages”…”reportable as wages on the employee’s Form W-2.”
“It as been determined by the FLSG Specialist that the taxpayer is wiling to correct all the above mentioned isues found during the examination,” one report concludes.
Implications for the 2011 tax year were not addressed in the report.
“I was instructed to follow the precedent sent by the 2010 audit when amending the 2011 W-2’s,” Supervisor Moore said.
“All taxpayers know they that have to comply with IRS regulations.
“It’s important that township officials are IRS compliant, too, but I don’t look forward to delivering this bad news to my colleagues.”
It is not clear whether the elected officials will have to repay the township the cost of the fringe benefits targeted by IRS.
The State Constitution says that no elected official can earn no more or less than what was set before he or she was elected:
Illinois Constitution Article 7
Section 9 Salaries and Fees
(b)An increase or decrease in the salary of an elected officer of any unit of local government shall not take effect during the term for which that officer is elected.
Some of the documents can be found here.