Some village organizations owe the IRS payroll taxes

State report: Tribal governments, cities, nonprofits owe $4.4 mill

Posted: Tuesday, July 28, 2009

ANCHORAGE - Some tribal governments, cities and nonprofits owe $4.4 million in unpaid payroll taxes and penalties to the Internal Revenue Service, according to a new state report.

One nonprofit, the Aniak-based Kuskokwim Native Association, owes $2.6 million, the Division of Community and Regional Affairs said.

The association's finance director, Samantha Gunes, told The Anchorage Daily News it has been struggling for years to pay bills. It's negotiating a payment plan with the IRS.

At issue is the part of each employee's paycheck that the employer takes out for income taxes, Social Security and Medicare. That money is supposed to go to the federal government right away. When it doesn't, the IRS comes calling.

The state agency tracks the IRS payroll tax liens.

For small cities trying to fix past mistakes, the debt can snowball into a mountain of interest and penalties. The tax trouble can keep nonprofits from getting grants and employees from earning credit toward their Social Security benefits, said Scott Ruby, deputy director of the division.

"We've had that issue with several communities," Ruby said.

Eileen McSherry, regional communications director for the Social Security Administration, said employees aren't punished for errors by their boss and can fix mistakes by calling their local Social Security office.

The state started tallying liens against communities with 1,500 people or less in 2007 to identify groups struggling with cash flow or management issues.

That list can be a tool for government agencies and foundations that give grants, because it reveals communities that are deep in debt or whose grants might go to the IRS.

"The fear is and continues to be that you're putting these grant moneys at risk," Ruby said.

The Kuskokwim Native Association took on 29 payroll tax liens in eight years, representing 10 times more money than any other agency on the list.

The social service agency has 11 full-time employees and an annual budget of $1.5 million. It runs fishery programs, delivers meals to elders and gives scholarships to high school kids in a dozen Kuskokwim-area villages from Lime Village to Lower Kalskag.

"When they hired me, it was in danger of being shut down. Doors closed, any assets being given to the IRS," said executive director Cynthia Navarrette, a former Alaska Native Health Board president who returned to her hometown of Aniak to try to pull the nonprofit from the brink.

Navarrette and Gunes, who are sisters, say a 2002 lawsuit crippled the cash-strapped nonprofit, spinning the agency into debt. A former employee won hundreds of thousands of dollars in a lawsuit over back pay, Gunes said.

The nonprofit runs on grants, which are meant to pay for specific projects, leaving only a fraction for running the agency.

In Kivalina, about 80 miles northwest of Kotzebue, City Manager Janet Mitchell said employees were getting paid but taxes weren't when she arrived in late 2005.

The IRS placed $132,000 in payroll tax liens against the city for 2002 to 2005, according to the state. Mitchell worked three-hour days for her first year on the job to save money. Through other steps, the city began catching up.

It now makes monthly payments to the IRS but doesn't seem to be making a dent in the overall bills. Mitchell said it will be a miracle if the debt is paid off in her lifetime.

"I know it's not going to happen right away, and I accept that. But that's not going to stop me from trying to find an answer or a resource."

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