Fringe Benefits of Public Officials Taxable

Someone mentioned the fight in Grafton Township, which brought the following Feb. 2, 2012, article to mind:

Officials’ Perks Ruled Taxable in Grafton Township

An IRS finding handed down January 31st will surely be the talk of the next meeting of the Township Officials of Illinois.

Use of Grafton Township Road Commissioner Jack Freund’s truck has been ruled taxable by IRS.

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.

Linda Moore

“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.


Fringe Benefits of Public Officials Taxable — 15 Comments

  1. In a taxing district charging triple the national average property tax rate, and triple the national average percentage-of-median-household-income demanded for property taxes, begging the IRS to intervene may be the only hope left to restrain unchecked profligate spending by local taxing bodies.

    All citizens should report known incidents of taxable fringe benefits given to public employees.

    (There may be whistleblower rewards for so doing).

    Only when the public employee fringe benefit recipients themselves feel some of the economic pain they are inflicting on the general population will they (perhaps) voluntarily relinquish something which benefits them so little while by contrast costing their neighbors so very, very much.

    IRS guidelines on taxable fringe benefits are not ambiguous.

    Public employees of schools and governments should pay taxes on fringe benefits as required by law, or relinquish those benefits, or tell those whose property values they have destroyed why not.

  2. First, and most importantly, I completely agree with the ethical and legal aspects mentioned above.

    However, “economic pain” doesn’t come from townships.

    Below are Grafton township’s two tax rates for 2017.
    GRAFTON TWP RD&BR: 0.06%
    Total: 0.13%

    Multiply the bottom figure by your net (after exemptions) assessment and you’ll see what Grafton costs.
    For every $1,000 of net assessed value, it’s $1.30.

    A $1 million (market value) property with General Homestead ($6,000) and Senior ($5,000) exemptions pays only $429 because of Grafton.

    School rates will vary based on location but here’s an example for Lakewood.
    SCHOOL DIST 47: 4.37%
    SCHOOL DIST 155: 2.83%
    Total: 8.92%

    That same $1M property pays $29,406 to these entities.

    $29K versus $400 clearly indicates the true source of the problem.

  3. Al? You’re missing the whole point. I don’t hink anyone is trying to pin all their woes on townships. The point here is that government is crooked. This is just one tiny slice of the pie that has no business stealing. Start with the small local crooks and drain your own swamp?

  4. Mccog is a social club, a way for elected officials to get a free dinner on taxpayers dime and make themselves feel important.

  5. Thanks Cal, good article and memory.

    Hopefully the Grafton Township revelations will be used in Algonquin Township to clean up the road district.

    Bob Miller was very close with Jack Freund, I am sure they were sharing notes on all of this.

  6. In four years, I’ve yet to see anything at Grafton that qualifies as “crooked.”

    Cutting the assessor’s budget past the bone and not paying valid department expenses, yes.

    Crooked, no.

  7. The problem here, Cal, is that after the “ruling” was revealed, IRS officials initially refused to discuss it.

    Then, days later, according to the attorney for then-Grafton Assessor Bill Ottley, the agency repudiated it.

    Certainly, it was never enforced at Grafton at the time, nor anywhere else, since.

  8. Although no one was charged with criminal activity, there were many changes in how the township operated going forward.

  9. “No one was charged with criminal activity” at Grafton because, (generally) IRS does not consider the value of uniforms, truck use, business lunches and spousal health insurance contributions to be income.

    Any “changes in how the township operated” after the IRS fiasco, if there were any, were more likely related to the fact that, at that point, every elected Grafton official was suing at least one fellow official and the Township’s reserves were vanishing faster than a pile of burning cobs.

  10. At least the Grafton stuff kept your “newspaper” in business. You quickly became pointless and quit!

  11. Seven years working like a dog and living like a monk wasn’t quick, believe me.


    Fringe Benefit Overview

    A fringe benefit is a form of pay for the performance of services. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.

    Performance of services. A person who performs services for you doesn’t have to be your employee. A person may perform services for you as an independent contractor, partner, or director. Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services.

    Provider of benefit. You’re the provider of a fringe benefit if it is provided for services performed for you. You’re considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you’re the provider of this fringe benefit even though the customer is actually providing the day care.

    Recipient of benefit. The person who performs services for you is considered the recipient of a fringe benefit provided for those services. That person may be considered the recipient even if the benefit is provided to someone who didn’t perform services for you. For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee’s family.

    Are Fringe Benefits Taxable?

    Any fringe benefit you provide is taxable and must be included in the recipient’s pay unless the law specifically excludes it. Section 2 discusses the exclusions that apply to certain fringe benefits. Any benefit not excluded under the rules discussed in section 2 is taxable.
    Including taxable benefits in pay. You must include in a recipient’s pay the amount by which the value of a fringe benefit is more than the sum of the following amounts.

    Any amount the law excludes from pay.

    Any amount the recipient paid for the benefit.

    The rules used to determine the value of a fringe benefit are discussed in section 3.

    If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. However, you can use special rules to withhold, deposit, and report the employment taxes. These rules are discussed in section 4.

    If the recipient of a taxable fringe benefit isn’t your employee, the benefit isn’t subject to employment taxes. However, you may have to report the benefit on one of the following information returns.

    If the recipient
    receives the benefit as: Use:

    An independent contractor Form 1099-MISC, Miscellaneous Income

    A partner Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.

    For more information, see the instructions for the forms listed above.

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