“It’s about the worst it can get,” was how Porter County Attorney Gwenn
Rinkenberger put it.
The Internal Revenue Service has decided to take a punitive stance against
the way the county handled some of its employee contracts in a tax audit for
the years 2007, 2008, and 2009.
The maximum amount the county could owe is $175,000, which is figured
through penalties and interest rates.
The agency sent the county a preliminary audit last month, saying the county
was wrong in how they issued tax forms for independent contractors, board
and commission members, fringe benefits, and backup withholdings.
Saying that they were operating in “good faith,” county officials contend
that penalties would not be necessary since they were already willing to
make the changes suggested by the IRS and no intentional fraud had been
The county held a conference call on Friday, Sept. 17, asking an IRS agent
to see if the penalties could be waived.
In a follow-up conference call on Monday, the IRS came up with an “accuracy”
penalty, which fines the figures in question at 20 percent, and a “failure
to deposit” penalty, which factors in an additional 10 percent. That means
together, the county will owe the IRS a 30 percent penalty on any tax they
contend the county owes.
Rinkenberger’s comment to the Chesterton Tribune was that it was too
“We’re going to be denying that we owe the taxes and we will be appealing
their audit,” she said.
The county will next ask the IRS to provide a revised preliminary report
showing the penalties. Rinkenberger said she knows the county will file a
formal disagreement with the report which is due on Nov. 1, but says they
may be able to clear up a few penalties in the meantime.
A final audit will be issued sometime after Nov. 1. The county will then
have 30 days to register objections with the Local Government division of
The IRS is also charging interest on the taxes in question. For taxes from
2007, the agency is issuing a 14 percent interest rate, eight percent for
2008, and 4.4 percent for 2009.
In an example, if the county paid an employee in 2007 for $10,000, the
county would have to pay that back plus 30 percent which comes to S13,000
and finally about $18,500 when you tack on the interest rate.
“The employees paid it. Now they want us to pay it,” she said. “I’m really
disappointed with the position they are taking.”
Rinkenberger described the actions as aggressive and punitive, believing the
IRS wants to deliberately take money from local governments including
municipalities. “It’s not right,” she said.
This is the first time she can remember the IRS auditing the county, and has
never heard the reprimands until now.
The fines would have reached $400,000 if Porter County auditor James Kopp
did not send out W-9 and 4669 Forms to the vendors from 2007. Not every
vendor has responded, however, and the county is currently facing a fine of
$41,000 from that section of the audit.
“We’re making progress I guess,” said Kopp.
The county is now using W-2s instead of 1099 Forms for its contractual
workers and county board members. Rinkenberger said she disagrees with the
IRS’s premise that the contractual workers should be treated as employees.
The county will try to help out employees who are caught in the middle if
the appeal is unsuccessful, but Rinkenberger figures that too could be a
The next step will be to ask the IRS for a revised audit taking out the
amounts that have already been corrected.