Scarsdale Board of Education Facing $1.3 mm in IRS Penalties and Interest Over Payroll Tax Errors

Written By: Robert Cox

SCARSDALE, NY — The Scarsdale Board of Education received a shock on Friday when Scarsdale Superintendent Dr. Thomas Hagerman informed the board that the Internal Revenue Service is assessing the Scarsdale School District $843,558 in penalties and interest for errors in payments of payroll taxes in 2020 as well as a tax shortfall for the fourth quarter of 2020 of $448,316, a total of $1,291,904. This, according to a statement posted on the district website.

The Scarsdale Board of Education accepted Dr. Hagerman’s resignation at its meeting Jan. 24. He is leaving at the end of the 2021-22 school year to become Headmaster at Latin School of Chicago.

The Board is scheduled to meet in public session on Wednesday, March 30 at 6 p.m. at Scarsdale High School at 2 Brewster Road in Scarsdale, NY.

According to a statement posted on tomorrow night’s meeting agenda, the District made “a few errors…in the semi-monthly depositing of payroll taxes in FY2020” and as a result, “the Internal Revenue Service has penalized the District.”

The statement says the District has been “engaging in exhaustive efforts over the past several months to resolve these issues.”

Fireworks are expected as board members seek to establish what Dr. Hagerman knew, when he knew it, and why he waited until two days ago to inform the school board.

The rest of the statement reads as follows:

The District is currently seeking a full refund and abatement of these penalties, but the exact timing and outcome of such refunds are uncertain.

Throughout 2020, the District made payroll tax deposits on a regular basis; however, errors resulted in a late payment in the first quarter of 2020 and misallocating certain third and fourth quarter 2020 payments to the second and third quarters 2020, respectively. This series of events has resulted in penalties and interest being assessed against the District as well as a tax shortfall for the fourth quarter of 2020.

The District is fully cooperating with the IRS, engaging in exhaustive efforts over the past several months to resolve these issues. As a result of those efforts, the District has been advised by the IRS Office of Appeals that the fourth quarter 2020 penalty in the amount of approximately $448,316 may be abated if, and when, payment of the fourth quarter 2020 taxes are satisfied in the amount of approximately $843,558.

The District will pay $843,558 to satisfy the outstanding taxes due and avoid incurring further penalties. Simultaneously, the District has filed a claim for a refund and request for abatement of the first and third quarter 2020 penalties in the amount of approximately $861,320, plus interest. 

If the refund and abatement requests are approved, the District may be made whole. If not approved, the District has the right to appeal in U.S. Federal District Court. 

In consultation with our auditors, the $843,558 penalty payment for the first and third quarter of 2020 will be booked as an account receivable until such time a final determination is made by the IRS or the judicial system. 

In addition, the IRS has also assessed a penalty of approximately $412,837, plus interest, pertaining to an unrelated error with respect to the District’s filing of its second-quarter 2021 payroll tax return. The District has already filed a request for abatement of this penalty. 

In response to these errors, corrective measures have been instituted to ensure that these errors do not happen again. Specifically, the District has reviewed its practices and implemented additional internal controls to prevent such errors in the future.

The District made the Board aware of these issues on March 25, 2022, and the Board has called for an audit of the District’s payroll tax processes, including a review of internal controls with the District’s Administration.

The Board is expected to approve a resolution at Wednesday’s meeting to pay $843,558 to the IRS.