Clerk-Treasurer Decides City Attorney Doesn’t Need To Pay Taxes

by Staff on March 14, 2007 · 1 comment

in Local

Apparently, Clerk-Treasurer Mark Kern decided that City Attorney Byron Steele doesn’t need to pay income taxes on the money that the city paid for his services.

This comes from the State Board of Accounts Audit Report B28650, “Examination Report of City of Mitchell, Lawrence County, Indiana, January 1, 2005 to December 31, 2005″ which was filed November 13, 2006.

Besides all the other fuck ups that can be attributed to Clerk-Treasurer Kern and his accounting practices, the thing that stood out to me the most comes from page number 13 and states:

“The City Attorney received compensation in the amount of $15,000 without payroll deductions for taxes and no Form W-2 or Form 1099 was issued.”

Most of you will know a Form W-2 is, I’m sure. It’s the form that you must fill out (for tax reporting purposes) once you become an employee of a firm. In this case, however, Byron Steele is not an employee of the City of Mitchell. Instead, Steele is contracted by the City to provide legal services. In cases such as these, a Form W-2 is not required. According to IRS regulations, however, the City must issue a Form 1099 to any person or firm to whom it pays more than $600 during a calendar year.

To illustrate, I own a company that provides various services in the information technology realm to a number of other businesses. I am not an employee of these businesses. Instead, they hire my company to perform these services. Since I am not an employee of these companies, they do not withhold income taxes from the monies I am paid. At the end of the year, when companies issue Form W-2s, they provide me with a Form 1099 which documents how much money I was paid by them (this is required by federal law if the amount exceeds $600). I am then responsible for including these monies on my federal income taxes and for paying the income taxes due.

The City of Mitchell, however, did not provide Byron Steele with a Form 1099, for reasons unbeknownst to me. Since they didn’t do that, it’s also fairly reasonable to believe that the same information was not provided to the federal government. If that’s the case, then Steele could simply “forget” about that $15,000 and not pay income taxes on it, and the IRS wouldn’t know any difference.

So besides everything else, it seems to me that the City of Mitchell could now potentially be aiding it’s attorney in committing tax fraud. I’ve sent an e-mail to Mr. Steele asking him about this, but have yet to receive a response. I’ll be asking Mayor Chastain and Clerk-Treasurer Kern about it as well.

UPDATE: I’ve made the SBOA report available here.

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