Jun 172011

By Teri Walker–

The Internal Revenue Service (IRS) has rejected the Holbrook Senior Center’s offer in compromise (OIC) to reduce the amount of delinquent taxes owed to the IRS, and the Holbrook City Council is considering appealing the decision.

Holbrook City Manager Ray Alley reported during Tuesday evening’s regular city council meeting, that in 2010, with the city council’s approval, the city helped the senior center develop an OIC to the IRS, requesting a bill for $70,718.49 in back payroll taxes be reduced to an amount not to exceed $58,256. A payment of $8,723, which included 20 percent of the total tax bill and a $150 non-refundable fee, was sent along with the OIC to the IRS.

Senior center officials spoke with IRS representatives on June 8 and learned the offer had been rejected because the IRS believes the senior center has sufficient assets to cover the debt.

In a memo to Alley, Carla Gabaldon, director of the senior center, said the center is left with two choices: withdraw the OIC and pay a reduced amount of $34,892 with reduced payments of $400 per month until the debt is paid in full, with interest and penalties continuing to accrue; or, appeal the decision, while continuing to pay the currently agreed upon $545 monthly payment.

Alley proposed that council grant permission for the city to pay off the entire tax bill immediately on behalf of the senior center, using contingency funds, to stop the ever-increasing interest and penalties. In turn, the senior center would make monthly payments of $545 to the city, interest free, until the debt is repaid. With interest and penalties that have continued to accrue during the OIC process, the amount still owed to the IRS as of May 25 was $59,358.47.

Mayor Jeff Hill and council members directed Alley to consult with a tax attorney to determine whether it is prudent to appeal the IRS decision, and what the likelihood of success might be.

Discussion among council and staff centered around the idea that there is a strong desire to provide relief to the senior center in the very near term, and consulting a tax attorney will help clarify which route is best to take.

During the council discussion, council members and city staff acknowledged that senior center officials have been honest and well intentioned during the entire process with the IRS, noting that the reason the center fell behind in tax payments had to do with mistakes made by an outside entity, Evercare, delaying payments to the center that were necessary for the center to be able to make tax payments. Evercare is a health care plan provider that is part of the Arizona Health Care Cost Containment System (AHCCCS), and the delayed payment issues were eventually resolved, but not before the senior center fell behind in tax obligations.

Council and staff acknowledged the senior center stayed in touch with the IRS during the nonpayment period, and did not attempt to evade the tax payment, they were simply unable to send in payroll tax withholdings because of the unavailability of funds.

Mayor Hill said, “I personally would be interested in paying up front…but we’d need accountability.”

The accountability discussed by council and staff included ongoing review of the senior center’s tax payments to ensure the center did not begin falling behind on tax payments again.

With a monthly payment plan in place with the IRS right now, Hill said, the center is not at crisis point yet. He moved to have staff consult with a tax attorney and return to council with a final recommendation.

“This has been a millstone around the neck of the senior center long enough,” said Councilman Richard Peterson, echoing others’ expressed desire to provide relief to the senior center as soon as possible.