Chesterton Tribune

Porter County employee contracts, fringe benefits questioned in IRS audit

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Porter County attorney Gwenn Rinkenberger is trying to buy some time in resolving issues in an audit report on county expenditures that was conducted over the past year by the Internal Revenue Service.

The federal agency sent a letter to Porter County auditor’s office earlier this month asking that the county review four separate Notice of Proposed Adjustment documents and report back as to whether or not they wish to accept or protest the adjustments no later than this Sunday, Sept. 5.

Rinkenberger said she has asked the IRS to extend the deadline to Oct. 1 so that the county commissioners can have time to review the documents, investigate if necessary, and decide whether they agree to the agency’s suggestions.

The decisions may include the County Council as well since the actions could influence county budgets. The county has made no official decisions so far in regards to what action it will take.

“We’re not down the road far enough to know how we are going to settle this,” said county auditor James Kopp.

The county ended up calling on an outside tax attorney to help decipher what is presented in the documents and what possible actions the county may take. Rinkenberger will make a presentation to the commissioners soon, possibly at their next meeting on Sept. 7.

Rinkenberger said the IRS has never conducted an audit of the county apart from the annual audit by the State Board of Accounts in her 15 years as county attorney.

She said the state has not made the same criticisms as the IRS, supporting the notion the county had not been wrong in the way it has made its payments. “We’re going to look at the merit of their contentions,” she said.

The IRS had no comment as to whether audits have been done before citing taxpayer confidentiality.

The audit is for years 2007, 2008 and 2009. The IRS stated in the documents the issues to be resolved include reclassifying three persons hired as contractors to county employees. The same is being urged for persons who hold subcontracts with the county such as police/sheriff fair security staff and those who sit on county boards.

Also in question are county vendor agreements from 2007 whose backup withholding for Total Reportable payments tallied up to $1,243,973 and $671,906.

Another issue being looked at is the county allowing certain members of the highway and street department, the sheriff’s police, and the Enhanced 911 department to use county take home vehicles which the IRS considers “fringe benefits” -- property or services provided to an employee.

Rinkenberger said the commissioners a few years ago decided it would be practical to limit the county vehicles to those individuals who are on call all hours of the day.

Rinkenberger still feels the need to give the employees vehicles for emergency situations and is willing to protest the contention that the vehicles are fringe benefits.

“We felt it was part of their job requirement,” she said.

The listed total amount for the use of vehicles in all three departments came to $30,579 in 2007, $33,429 in 2008, and $31,873 in 2009.

Kopp said the IRS would like to see use of those vehicles declared as income on the tax forms belonging to those specific employees. The IRS is asking the county to redo the W-2s for those three years.

“We’re Getting it Fixed”

Rinkenberger said the county changed its policy regarding fringe benefit vehicles by assessing the vehicles and putting it on employee’s W-2s. She said the auditor has in fact corrected most of what the IRS has objected to during the past year.

“Most of the issues in that report don’t exist now,” she said. “We’re going to be (talking) about past practices, not current practices.”

The IRS has suggested the county start using W-2 tax forms for nearly all of those who are on contract instead of 1099MISC tax forms generally issued for independent contractors.

The county generally issued Form 1099MISC for any payments to board members or fair security that exceeded $600 because this is the way it has always been done, the documents said. Some fair security workers were already employees of the sheriff’s department and received W-2 forms.

Rinkenberger said the county either has or is in the process of reclassifying the three contractors as employees: Deputy Prosecutor Bruce Dumas, Memorial Opera House Facilities Director Brian Schafer, and Emergency Response Coordinator Eric Kurtz.

Kurtz had already been signed on as a legitimate contractor after 2007, correcting the problem. The county council earlier this year approved arrangements for both Dumas and Schafer to be classified as county employees instead of contractors.

Schafer also doubles as the manager of the Porter County Expo creating a position that is essentially full time. Dumas worked as a part-time deputy prosecutor for child support cases since returning to Porter County in 2004 after working briefly in St. Joseph County. It was reported by the prosecutor’s office that Dumas retired recently.

The amounts for the reclassified workers indicated in the documents are $155,096 for 2007 (including Kurtz), $104,591 for 2008 and $96,350 for 2009.

Even though the county has recently complied with paying board and commission members through W-2s instead of 1099s, Rinkenberger said she did not agree to the change because considering them as employees of the county brings up the issue of liability.

Those who sign on as an independent contractor are not entitled to benefits provided to county employees. Members of some county boards are paid $50 per meeting. Others, including the Visitor Commission and Park Board, serve without pay.

The county has already made the effort to fix the issue with the vendors. Kopp said he sent forms W-9 and 4669 to those who had not correctly filled out those forms for 2007 and asked them to refile.

He said about half of the vendors have responded. He said he was going to cut off payments to the vendors until they can provide the documentation.

The vendor issue is not expected to happen again because the vendors now properly receive a Form 1099 from the county.


Rinkenberger told the Tribune she does not expect any charges of wrongdoing against anyone in the county as a result of the audit.

It has not been determined yet if penalties will be issued.

Rinkenberger said her biggest hope is that the employees won’t have to amend their tax returns from previous years.

Kopp said he is willing to pay the interest but hopes to get the penalties removed. He said he would like to see the issues be resolved by the end of this year when his term expires and not have to place the burden on the shoulders of his successor.

“We’re pretty protected now,” he said. “It’s easier to try and do more now than make it go away.”

Porter County Commissioner President Robert Harper, D-Center, although admitting he had not yet examined the documents, pointed out that Porter County is not the only county in the state to be delivered notices from the IRS. He said the IRS has also been auditing a few local municipalities as well.


Posted 9/1/2010