PINE BLUFF — The city of Pine Bluff owes the Internal Revenue Service $63,803 for the 2007 tax year, according to an IRS audit.
Pine Bluff Finance Director Steve Miller said the IRS audited the city for the year 2007, but he believes the city really owes $52,000 and will provide the IRS documentation to show that.
Pine Bluff City Attorney Carol Billings said some of the money involves taxes for city workers who were initially labeled as independent contractors, meaning the city didn’t pay its portion of payroll taxes on those individuals.
“What the IRS seems to be hitting on are a lot are those self-employment taxes, and they say the city’s portion [of payroll taxes] should have been paid on those, including Social Security and Medicaretaxes, instead of something the worker paid all by themselves as self-employment tax,” Billings said.
The biggest portion of the money owed the IRS - $33,991.34 - involves a 1983 change in the tax law dealing with the city’s retirement program, Billings said.
The change involved Medicare and Social Security taxes no longer exempt for cities, counties and states, Billings said. The city owes $27,491.45for Social Security taxes and $6,499.90 for Medicare taxes on nonuniformed employees, according to an IRS preliminary audit provided to the Arkansas Democrat-Gazette by the city attorney’s office.
“That never got picked up in our retirement program,” Billings said. “The IRS said if we pay what we owe in 2007 and correct this in the future we can get everything straightened out.”
Billings said it appears the city will get a reprieve on those taxes due from 1983 forward, excluding the tax money the city would pay for the 2007 year.
Pine Bluff Mayor Carl Redus Jr. said the city did nothing intentionally wrong.
“It was matter of interpretation of the tax code, and it never was picked up by our auditors,” Redus said. “It’s been settled and worked out. What they came up with, we acknowledge and we are basically moving forward with it.”
“What’s the story?” Redus asked. “Lots of people owe the IRS money.”
Alderman Wayne Easterly said the city hired a tax attorney, Jim Moser Jr. of Pine Bluff, to look into what the city owes the IRS.
“Some of the debt is questionable,” Easterly said. “Some of it we know we owe. That’s the reason we have a tax expert looking into this, to see what took place and what didn’t take place.”
Moser was unavailable for comment Monday afternoon. A voice message on his office phone was not immediately returned.
David Stell, a spokesman for the IRS, said he was unaware of the IRS audit for Pine Bluff.
Billings and Redus said the IRS is auditing other cities and municipalities in Arkansas, too, based on whether they were in compliance with the 1983 change in the tax code.
Stell said after 5 p.m. Monday that he was awaiting a call back from the IRS’s federal, state and local governments group to see if other municipalities in Arkansas were also being audited.
He had not received a call back from them by Monday evening.
Northwest Arkansas, Pages 11 on 12/29/2009