5.2. ERMUSR 01-10-2006. "'~i
ilk River .;
1Vlunicipal Utilities
13069 Orono Parkway
Elk River, MN 55330
January 5, 2006
To: Elk River Municipal Utilities commission
Jerry Takle
Jim Tralle
John Dietz
From: Theresa Slominski
Re: Update on IRS and sales tax issues
phone: 763.441.2020
Fax: 763.441.8099
Attached is an itemization of the IRS amounts that were paid for penalties, interest, and
taxes in 2005. As you can see, there was a "snowball effect" that was started when the
civil penalty was assessed. There was an error in the filing date for the 3`d quarter of
2004 payroll tax deposits, and it was viewed as an overpayment that was taken and
applied to the civil penalty. This created an underpayment situation for the 3`d and 4rn
quarters of 2004 payroll tax deposits, and penalties and interest assessments followed.
To recap, this civil penalty resulted from IRS and Social Security inquiries when the W2s
and the 941 s for the year 2001 were not in agreement. They were not in agreement due to
the manipulating of the W2s that occurred. The penalty itself was paid in March of 2005
and so we are working with our auditors to see if the "snowball effect" for penalties and
interest for payroll tax deposits in 3`a and 4`h quarters 2004 can be abated. It will take
some time before we have any response from the IRS on the abatement. Of the $98,063
paid, our out of pocket amount is $42,933.38. (This amount is included in the restitution
we have submitted for reimbursement from Pat Hemza's court case.) We are meeting
with the county attorney on Tuesday morning and will have an update at the commission
meeting.
Corrected W2s for all years for Pat Hemza are being filed now rather than waiting for the
court case to be finalized.
The Minnesota Department of Revenue still has not made a final determination on the
sales tax abatement of $15,270. The last conversation that I had with them though was
not promising. There was another late payment (9 days late) from July 2003 that was
working against us. It was stated that while the process is slow, probably the only thing
missing in our case is the formality of a letter denying our request. This was also included
in the restitution request.
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