Update: An IRS audit has found that over the past few years, the city of Boston was about a million dollars short on its federal tax payments.
The full audit, which was first reported by The Boston Globe, began in 2016 and was completed in October of this year. The audit covers the city’s taxes for the 2014 and 2015 calendar year. In addition to the four instances of mismanaged accounts in the School Department that WGBH News reported on yesterday, the IRS also cited the city for three additional issues of improper accounting in the payroll department.
The city settled up with Uncle Sam earlier this month, paying nearly $1 million dollars in back-taxes to the IRS. More than $700,000 of that related to the city’s failure to properly deduct Medicare payroll taxes from hundreds of employee’s paychecks in 2014 and 2015. Similar mistakes may have taken place in prior years. If so, it’s unclear whether the city faces additional tax liabilities.
Hundreds of employees are expected to receive adjusted W-2 tax forms from the city in the coming weeks. The IRS says it will not levy financial penalties against any individual employees.
----------------------------------------------------------------------------------------------
The City of Boston will pay $28,000 in fines and back taxes after an audit revealed Boston Public Schools used student activity funds for under-the-table payments to employees and avoided paying taxes, according to a partial IRS audit obtained by WGBH News.
In addition to using student activity accounts to pay employees under the table, the schools accrued fines for “bad accounting practices,” including neglecting to gather receipts for reimbursement of vendors and using educational funds for after-school programming, according to the IRS.
Of a total of just over $28,000 in fines and assessments, the city will pay $9,036 in back taxes for employee compensation, $6,988 for worker classification considerations, and $12,100 for not properly filing tax forms.
In 2014, the schools used student activity funds to pay a total of $32,389 in additional wages to employees, according to the audit. Reasons for payments include “several,” “unknown,” and “gifts to employees,” which cost East Boston High School $1,315. The Sarah Greenwood School in Dorchester spent nearly $20,000 for an “unknown” reason, with a memo that states the spender “threw away [the] receipts.”
According to a report Monday from The Boston Globe, Boston Superintendent Tommy Chang withheld details about the IRS audit from the school committee and kept the news from the public and from city officials, including Mayor Marty Walsh.
Walsh told WGBH News his office “had some conversations” with Chang. “I wouldn’t say [I was] angry, but I was concerned about it,” Walsh told WGBH News Tuesday. “I found out that this wasn’t a practice happening under Superintendent Tommy Chang’s leadership — this practice goes back under many, many different superintendents in the school department… I think this literally goes back almost 20 years.”
Walsh said he doesn’t think Chang intentionally kept the information from him, blaming the superintendent’s busy schedule. “I don’t think so at all,” Walsh said. “I think it was one of those things, there’s a lot going on.”
According to the IRS, failure by the schools and their employees to report their earnings means a failure to pay taxes on income, which is a violation of federal tax law. Using student activity accounts for purposes other than supplementing a student’s education is a violation of federal and state rules.
“The school department has been working with the IRS and corrected all of those things that we’re doing wrong, and we fixed that,” Walsh said. “It’s not going to happen again.”
Moving forward, Boston Public Schools agreed to a thorough review of all accounting practices of student activity accounts, retraining and educating staff to ensure accounting procedures are followed, and plans to implement a new financial reporting structure to monitor and manage accounts. The new structure, now in place at three schools, is slated for a rollout at all Boston schools by the end of the 2017-2018 academic year.
Correction: An earlier version of this story incorrectly characterized the portion of the IRS audit relating to the Boston Public Schools as the full audit of Boston. The piece has been updated to reflect the information WGBH News had was only a part of the audit. An update to the story also incorrectly referenced Medicaid payroll taxes instead of Medicare. That has also been updated. We regret the errors.
