Is the End Nigh for Scarsdale Schools Superintendent over IRS Fiasco?

Written By: Robert Cox

SCARSDALE, NY (April 30, 2022) — What did he know and when did he know it?

That is the question the Scarsdale Board of Education is wrestling with as it determines whether to accelerate the expected departure of their longtime Superintendent with less than three weeks until the annual budget referendum scheduled for May 17.

Holding off the wolves baying at the door until after the budget vote appears no longer tenable as tensions have mounted and the Board has struggled to fend off questions from increasingly vocal members of the school community who want to know what happened and who is responsible for a $1.2 million tax mess with the IRS.

Over the past 24 hours, the Scarsdale BOE scheduled then cancelled then rescheduled a Special Meeting to “convene an executive session to seek the advice of counsel, and to discuss the employment history of a particular person.”

The meeting notice said, “The Board may take action following return to public session from the executive session before it adjourns the Special Meeting.”

The Special Meeting was scheduled for 4:00 pm on Friday, April 29, but abruptly cancelled just hours before then moved to Monday, May 2 at 5:00 pm.

The on-again off-again on-again Special Meeting follows an April 25 board meeting where Board President Karen Ceske read the following statement:

“The events of the past few weeks have been very difficult for all of us, but I want to assure the community that the Board is committed to investigating the circumstances of the IRS matter, reviewing and improving controls to limit the chance of similar issues in the future, providing oversight, and also providing as much transparency to the community as we can within legal constraints.”

It is believed the Ceske and the Board have been laying the predicate to remove Scarsdale Superintendent Dr. Thomas Hagerman just weeks before his scheduled departure at the end of June.

Unaware of a major scandal brewing behind the scenes, the Scarsdale Board of Education accepted Dr. Hagerman’s resignation as Superintendent at its meeting on January 24. He was scheduled to leave his current position at the end of the 2021-22 school year to become Headmaster at the prestigious Latin School of Chicago. That plan may be unraveling.

In a story first reported on Talk of the Sound, the Scarsdale Board of Education has been in turmoil since March 25 when Dr. Hagerman first informed the board that the Internal Revenue Service assessed 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.

A statement issued at the time sought to minimize the issue, saying 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 said the District has been “engaging in exhaustive efforts over the past several months to resolve these issues.”

The full statement is here.

Ever since Hagerman disclosed the “IRS Matters” to the Board, the Board, its investigators, school community members and this reporter have been seeking to answer the Watergate era question: what did he know, and when did he know it?

After weeks of stonewalling a series of Freedom of Information (still not filled) by this reporter, other media outlets and community members, to establish the timeline and communication between staff and the Superintendent, the Board signed an agreement on April 20 to hire an investigator to answer the “what did he know and when did he know it” question and issued a statement:

The Scarsdale Board of Education has appointed Anthony J. Brock, Esq. to conduct an investigation of the IRS payroll tax issue beginning Monday, April 25th… The Board is committed to confirming the facts of the IRS payroll tax matter and discovering any additional pertinent information. The scope of this investigation will focus on timeline and communication. This investigation will also assist the Board in determining appropriate next steps.

Before the April 25 School Board Meeting, the Audit Committee, made up of all 7 board members, met. Afterwards, at the regular board meeting, Board President Karen Ceske read a lengthy statement disclosing additional issues and plans to audit the District’s payroll tax processes, including a review of internal controls.

Tax counsel has provided the following update on the status of the Q4 2020 matter: First, the Appeals Officer confirmed that the Q4 2020 tax payment of $843,558 has been posted to the District’s account and has been properly applied to the outstanding Q4 2020 tax. Therefore, as of April 13, 2022, the outstanding balance in Q4 2020 is a total of $460,609, comprising a failure to deposit penalty in the amount of $410,178 plus interest, a failure to pay penalty in the amount of $38,138 plus interest, and a lien fee of $80 plus interest.

As instructed by the Appeals Officer, the District has made a payment in the amount of $85, representing the lien fee plus interest. Tax counsel has been told by the Appeals Officer that the Appeals Officer is in the process of drafting a final penalty abatement recommendation for the Appeals Officer’s manager to approve and sign. This process takes approximately two to three weeks. If and when the final penalty abatement recommendation is approved, the Appeals Officer should instruct that penalties and the related interest be adjusted to zero. This process takes approximately another two to three weeks.

Once the District’s account for Q4 2020 is fully paid, meaning the tax is paid, the lien fee plus interest is paid, the penalties are abated, and the interest is adjusted to zero, the District should receive a notice from the IRS stating that the balance of the District’s account for Q4 2020 is zero.

The Appeals Officer has advised that the lien should then self-release 30 days after the balance of the District’s account for Q4 2020 is zero. The District should receive a notice from the IRS when the lien has self-released.

After receiving this notice, the District anticipates pursuing the additional steps of having the lien fully withdrawn from all records by submitting a petition to the Appeals Officer, who has agreed to assist in submitting the petition to the Advisory Office.

After the Advisory Office considers and hopefully grants the District’s request for lien withdrawal, the Appeals Officer should issue a written decision, which will comprise only a very brief summary of what occurred over the course of this case as well as the final disposition of the matter. The Appeals Officer predicted that a decision will be issued no earlier than mid-July.

Additional IRS notice received by the District:

The Board and the District’s tax counsel have recently been made aware by District administration of another notice received for a similar issue to the Q2 2021 issue. On April 4, 2022, the District administration received a Notice CP207, dated March 28, 2022, for Q3 2021. Specifically, this notice alleged that, like in Q2 2021, the District failed to submit or failed to submit a properly completed Schedule B with its Q3 2021 Form 941. However, we note that, unlike the Q2 2021 issue, this Q3 2021 notice is only a request for more information, not a penalty.

The District’s administration submitted a response to this notice on the same day that it was received. Both the Board and the District’s tax attorneys were made aware of both the notice and the response to the notice only after the response had been submitted by the District administration. The District’s tax attorneys have reached out to the Revenue Officer with which they have been working on the Q2 2021 issue to also discuss the Q3 2021 issue, but have not yet received a response. The District’s tax attorneys will continue to provide updates to the Board on both the Q2 2021 and Q3 2021 matters as they arise.

Earlier this evening, the Audit Committee, composed of the seven members of this Board, met with our internal auditor, Cullen and Danowski LLP, to discuss a proposal for an internal audit. As stated at our April 4th Board meeting, the Board has called for an audit of the District’s payroll tax processes, including a review of internal controls. The services proposed to be provided by our internal auditor is a potential option as we determine how best to conduct a review of internal controls.

Regarding the accounting treatment of this issue, District administration has advised the Board that the District’s external auditors, EFPR Group, have stated that the matter is being accounted for correctly. The Board is scheduling a meeting with the District’s external auditor to discuss this matter as part of the Board’s oversight responsibilities.

The Board will continue to discuss this matter to determine the appropriate next steps. In addition, the District is working on an internal controls report, which outlines enhanced steps that are being taken, such as additional employee verification of submissions, or will be taken to prevent the circumstances that gave rise to the IRS matter.

The events of the past few weeks have been very difficult for all of us, but I want to assure the community that the Board is committed to investigating the circumstances of the IRS matter, reviewing and improving controls to limit the chance of similar issues in the future, providing oversight, and also providing as much transparency to the community as we can within legal constraints. We thank you for your patience and for sending your feedback and questions, which we will answer as we can. The Board has created a page on the website entitled IRS matters, which can be found on the Board’s homepage and on the District’s homepage under Site Shortcuts.

RELATED

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

IRS Matters

Investigative Service Agreement

Board Press Release

Board President’s Statement, April 25, 2022 Board Meeting Highlights

Board President’s Statement, April 4, 2022 Board Meeting Highlights

2 thoughts on “Is the End Nigh for Scarsdale Schools Superintendent over IRS Fiasco?”

  1. Hope we can find out the results of your FOIL request soon! Though as someone who has been through the process, my assumption is they will hide behind whatever they can to not disclose. The Board and Hagerman have always hidden away behind redacted documents.

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