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IRS hits Pennington County with $87,000 in penalties
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IRS hits Pennington County with $87,000 in penalties

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Administration Building

The Pennington County Administration building in downtown Rapid City.

The Internal Revenue Service is slapping Pennington County with $87,140.63 in penalties for mishandling payroll taxes.

Pennington County Auditor Cindy Mohler has asked the County Commission to authorize payment of the penalties. The commission is scheduled to consider the request today during a regularly scheduled meeting beginning at 9 a.m. in the county’s Administration Building.

The IRS imposed the penalties Oct. 2 after examining the county's employment tax records during the summer. Mohler said the county was apparently chosen at random to undergo the examination, which covered the years 2016 through 2018.

The penalties are the result of a longstanding payroll-tax practice that county officials mistakenly considered lawful.

Mohler said county employees were formerly paid once per month, and employees were also given the option of receiving a mid-month draw. Employees who participated in the mid-month draw received part of their pay on the 15th each month, and the rest at the end of each month. More than half of the county’s employees participated in the program, Mohler said.

The county did not withhold payroll taxes from the mid-month checks. Instead, the county waited until the end of each month to withhold payroll taxes from employees' total monthly pay.

“At no time did the county neglect to pay the tax liability,” Mohler said.

The IRS informed Mohler that the county should have subjected the mid-month checks to withholding and should have remitted mid-month payroll taxes to the federal government, instead of waiting until the end of the month to do both. In other words, the county was unwittingly late each month in remitting the federal payroll taxes that should have been withheld from the mid-month checks.

Penalty rates for late deposits of federal payroll taxes range from 2 to 15 percent, depending on the number of days that the deposits are overdue. After its examination of Pennington County, the IRS imposed penalties of $28,022.67 against the county for 2016, $29,286.70 for 2017 and $29,831.26 for 2018 — a total of $87,140.63.

The mid-month draw option for county employees was implemented about 30 years ago, Mohler said. She took office in January after winning the November 2018 election. Her predecessor, Julie Pearson, did not run for re-election last year after serving 32 years in the job.

Mohler said she was not aware of the county’s payroll tax records ever being examined previously by the IRS. The county’s regular annual audits by the state Department of Legislative Audit did not identify the payroll tax problem, she said.

The county is fixing the problems cited in the IRS examination by eliminating the mid-month draw and changing from a monthly to a biweekly payroll cycle, Mohler said, with each paycheck subjected to payroll tax withholding.

In a memorandum to the Pennington County Commission, Mohler wrote that she has conferred with a certified public accountant who said there are no grounds to appeal the penalties. But the accountant said it might be possible to get one year of the penalties abated, and Mohler said she has made that request to the IRS.

Contact Seth Tupper at seth.tupper@rapidcityjournal.com

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