Scarsdale School District Releases Documentation on IRS Tax Issue
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Reversing years of secrecy, on May 10, 2022, in response to a FOIL request, the Scarsdale Board of Education released a trove of documents related to the district’s tax problems. The documents, which are letters to and from the IRS to the district, outline a series of payroll tax errors during 2020 and 2021 that resulted in penalties, fines and a $1.3 million lien against the district. Scarsdale School Superintendent Thomas Hagerman’s failure to divulge the problems ultimately led to his early resignation from his job on Friday May 6, 2022.
In addition to shedding light on the clerical and timing errors that caused the trouble, the documents provide a record of the IRS failing to notice and notify the district of their errors. The agency was hampered during COVID and delayed their processing. This may be the reason that the school district was not notified until January 11, 2021 about a penalty of $174,798.60 for a failure to deposit the proper amount in the first quarter of 2020. It took until April 26, 2021 for the IRS to notify the district of an additional penalty of $539,370 for the “total failure to make a proper federal tax deposit in the first quarter of 2020, bring the total penalty with interest to $715,683.71.”
In addition, the IRS applied payments for subsequent quarters to cover penalties and interest for previous quarters, rather than the quarters for which they were intended.
This series of errors resulted in a cascading series of increasing penalties and interest, and a $1.3mm lien on the district, despite the fact that once the district was aware of the issues, they made all required tax payments in full.
The FOILED documents include an affidavit from Scarsdale School District Treasurer Jeff Martin attesting to the fact that the district has “at all times, acted in good faith and its inadvertent clerical error were not due to willful neglect or intentional disregard.” Furthermore, “the taxpayer (Scarsdale Schools) made numerous attempts to contact the IRS to resolve these issues as soon as they were notified,” and “complied with IRS instructions, including providing a reconciliation of the clerical errors, in order to resolve this issue and avoid a Federal Tax Lien, but to no avail.”
The district is applying for an “abatement for reasonable cause" because:
-all required deposits have been made and taxes have been paid by the taxpayer
-all the errors were inadvertent clerical error
-the district has instituted a corrective action plan and new procedures
-the district made good faith attempts to contact the IRS to resolve the issues
-had the third and fourth quarter 2020 taxes been applied to the proper payment for the proper quarter as intended, the district would have incurred only the first quarter 2020 penalty related to the $900,00 shortfall.
See all the documents relating to the tax issue on the Board of Education page of the Scarsdale Schools website under the tab IRS Matter.
Reports about the backlog in tax processing at the IRS have appeared in the Washington Post, Politico and the New York Times. The agency has lost 20,000 employees since 2010. The New York Times reported, “As of late December, the I.R.S. had yet to finish processing six million original tax returns, 2.3 million amended returns, more than two million employer quarterly returns and five million pieces of taxpayer correspondence — with some submissions dating to April and with many taxpayers still waiting for refunds, according to the advocate’s report.”
An article in Politico says that in January 2022, 200 Senate and House members wrote a letter to the IRS Commissioner Chuck Rettig asking the agency to excuse penalties, delay collections and put fewer limits on taxpayer’s ability to claim reasonable cause for relief due to the pileup at the agency and their inability to sort and answer all the mail.
According to the Politico article, “The unprocessed forms have in many cases led to automatic penalty notices, liens and more.”
With issues still unresolved at the Scarsdale Schools, the IRS continues to automatically issue penalty notifications despite the fact that all taxes have been paid.
School Board Issues Request for Proposal for Firm to Conduct Search for New Superintendent
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Superintendent Thomas Hagerman announed his resignation in January, the School Board named Andrew Patrick as Interim Superintendent and now the search for the next superintendent of the Scarsdale School’s is officially on. Last week, the Scarsdale Board of Education posted a request for proposals (RFP) for a firm to conduct the search, with the goal of hiring a new superintendent effective July 2023. The district has created a new link for the Superintendent Search on the Board of Education website where you can find the RFP.
Under the terms of the contract, the firm will conduct the search but will also:
-Act as advisors to the Board to “Develop a search plan and timeline in consultation with the Board; support the Board throughout the interview and selection process, including the structure and role of potential advisory committees; ensure compliance with applicable legal requirements; and develop and implement a plan for a national search.”
-Conduct community engagement: “Work collaboratively with the Board to create a plan for extensive engagement with Board members, faculty, staff, parents, students, other school community members and groups, as well as members and groups from the broader community as appropriate.”
-Define qualifications and criteria for applicants.
-Identity, screen and propose candidates and assist with scheduling interviews and evaluations.
-Assist the board with contract negotiations for the selected candidate.
Firms are asked to submit their proposals with fee estimates by May 20, 2022 and the board will make their selection by June 15, 2022.
The past few weeks have been very busy for Scarsdale School Board members. After the revelation about troubles with IRS and a tax lien on March 25, the board has been working on an investigation of what happened and considering an audit of accounting processes. At the same time, they were involved in succession planning for the top job in the administration and this is the first step in identifying the district's next permanent superintendent.
SBNC Slate to Run Unopposed for Scarsdale School Board
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The wait is over. Monday April 18 was the deadline for candidates for Scarsdale School Board to file their petitions to run in the election on May 17, 2022. This year there are three available seats on the board – and the Scarsdale School Board Nominating Committee has nominated three candidates to fill those seats.
Since no additional candidates filed petitions by the deadline, these three will run unopposed.
The candidates are Ron Schulhof, who is running for a second three year term along with Colleen Brown and Suzie Hahn Pascutti, who are running for their first terms. All three live in Quaker Ridge. Find information about the candidates here:
The election will also give voters the opportunity to vote on the proposed 2022-23 school budget.
The election will take place on Tuesday May 17, 2022 at the Scarsdale Middle School from 7 am to 9 pm. Find voter information here:
Board Considers Contract with Internal Auditors to Analyze Payroll Withholding Process
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In their effort to unpack the process that resulted in the Scarsdale School District’s trouble with the IRS, the Board of Education met with accountants Don Hoffmann and Richard Coffey from Cullen & Danowski, LLP to review their proposed agreement to conduct an audit of the district’s recording and payment of payroll withholdings.
The firm submitted a proposal to do the audit for the period January 1, 2020 to April 30, 2022, and the proposal can be viewed on the district website here:
The auditors will take a look at the district’s internal process and controls for payroll tax processing by interviewing district staff to determine how things are usually done and then test this process for all payrolls processed since January 2020. They will audit the aggregate amounts withheld and remitted to third parties by looking at the recorded amounts in the general ledger and the amounts paid per bank statements. Some of the third parties who receive the withheld funds are retirement funds, health insurers, social security as well as the state and federal revenue services. According to the accountants, the errors made in Scarsdale were identified in a bank reconciliation.
As part of the audit the firm will document the existing process and “identify opportunities for improvement,” and will “discuss findings with the District administration and develop recommendations to further improve the procedures related to the recording and payment of payroll withholdings.”
The proposed fee ranged from $7,000 to $12,000 and they would begin the work in May with the goal of completing it by June 30, 2022.
In a discussion with the board, the auditors explained that there are about a dozen internal areas to audit, and they usually pick one per year. The last time an audit of payroll processing was done was 2014.
Board member Jessica Resnick-Ault asked if the audit would include a review of remittances to the IRS and she was told this was not included. The board subsequently decided they would like to add a review of IRS remittances to the audit and also require the firm to provide check-ins during the two month process. Board member Ron Schulhof asked the firm to provide a copy of a similar report they have done for another district and they agreed to do so.
At the end of the discussion, the Board said they would discuss the agreement and decide no later than their next meeting on May 9 if they would move ahead. Board Vice President Amber Yusuf said this would allow time for the board to consider anything else they want to add to the agreement and to also receive comment from the community.
Discussing the matter during public comments, Mayra Kirkendall-Rodriguez said, “It’s been one month since the board said they found out about the payroll problem. Not one of my questions has been answered. It has taken three weeks to hire an investigator and also three weeks to hire your own internal auditors to review this. They are not independent because they have already worked with the administration.”
“What are the payables and receivables and where are the documents to support the hope that the money will come back? Where are the records from your auditors? How will the penalties affect how this district can educate our kids? You are asking us to accept this school budget on faith. Frankly there is less mystery in the holy trinity than there is in this district. It is very troubling that Brock’s contract (the investigator) is so redacted that we have to guess what it is about. I will continue to ask – who, what, why and where.”
Bob Berg attempted to speak remotely from an airport in Doha, Qatar. Before he was cut off he said, “I want to argue against hiring Cullen and Danowski to do the audit since they missed the boat during the relevant period. Why would you hire the firm to do an investigation since they were responsible for looking out……”
Anthony J. BrockBoard President Karen Ceske also announced that a new section titled “IRS Matter” has been added to the home page of the district website. You can see it here.
Posted in this new section is the agreement with attorney Anthony J. Brock to conduct an investigation of the IRS filings and tax lien and to determine “why the Board of Education was not informed of this information until March 2022.”
A second item on the contract for the investigation was redacted from the posted copy of the agreement.
All services will be billed at the hourly rate of $205 per hour.
A Passover Prayer Inspired by Ukrainian Refugees from Rabbi Jonathan Blake
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Each year, Rabbi Jonathan Blake fro Westchester Reform Temple in Scarsdale, composes a special prayer that you are invited to share at your Passover Seder. Upon returning from Poland, Rabbi Blake composed this year’s reading with Ukrainian refugees in mind, as they will be in all our hearts at this Pesach season. We dedicate a symbolic seat at our Seder table to them.
A Prayer for Pesach 5782 / 2022
The Passover story begins like this:
“My parents were wandering Arameans.”
Countless times in our history we have been refugees:
Fleeing tyranny in terror and degradation,
Hoping against hope for something better somewhere else,
Taking only what we could carry on our backs,
With aging parents, frightened children,
And memories of what used to be our homes.
Refugees from Egypt, coalescing as a people at the shore of the raging sea;
Refugees from Canaan, by famine and siege and violent conquest,
Refugees from Jerusalem, ransacked by the Romans;
Refugees, time and again, at the decree of Popes and Kings.
Boarding rickety boats from Iberia to bypass the Inquisitor,
Seeking safe passage to some Sultanate or Caribbean isle,
Tempest-tossed to these American shores,
Or bound for the place we never stopped calling home, Eretz Yisrael,
Embers plucked from the flames of the Shoah,
Strangers in strange lands.
Always strangers.
We know the heart of the stranger.
And when we see mothers and their children, red-eyed from lack of sleep, on a train that departed Ukraine just last night,
We recognize something of ourselves, our story, our spirit.
Our ancestors were forced to wander, and by some wondrous combination of courage and circumstance, of other people willing to help and their own faith, against all odds, in God’s Providence, they arrived in a place called home.
May God give us the strength and determination to do for others what was done for them, and for us.
Amen
