[quote style=”2″]Jones Claims City Should Pay $1,025 Tax Penalty[/quote]
Former Hermiston Assistant City Manager Ray Jones paid a visit to the council chambers at Hermiston City Hall Monday night, but it wasn’t to say “hi” to his former colleagues.
Jones was there asking the city to reimburse him for a $1,025 tax liability he owes, plus $225 in CPA fees and any future IRS interest penalties he may face. His former supervisor, City Manager Ed Brookshier told Jones the city is not obligated to pay his tax liability and the city council agreed, so Jones left empty handed.
The dispute goes back to February 2010, when Jones agreed to take an early PERS retirement, then return to work half time. Under the agreement, the city continued to fully pay for Jones’ health insurance premiums for both Jones and his wife while he worked part-time. Over the course of the agreement, those benefits totaled approximately $12,000.
The problem, however, stems from how the city reported the benefits paid out to Jones. The premium cost was given to Jones each month in the form of a check which he was to use to pay for his health insurance. A review by the IRS division that deals with federal, state and local governments determined that this payment method was improper. Instead, the city should have reimbursed Jones only after he paid the premium and produced for the city his bill and cancelled check.
It turns out, the IRS viewed Jones’ $12,000 benefit payments as income, thus he was forced to amend his tax returns and owed $1,025.
Jones contends he was assured he would face no tax liability on his benefits and since the mistake was made by the city, the city should reimburse him for his taxes he owes, plus the $225 fee for preparing his amended tax return, plus interest penalties he will face for late payment of his taxes.
“I had absolutely no error or omission that caused me to incur this penalty,” Jones told the council. “I believe, morally, the city has the obligation to pay the penalty.”
Brookshier said he did not give Jones any assurances regarding taxes he would owe on the benefits.
“I would not have been in a position to say, ‘OK, I can guarantee there will be no tax consequences,’ ” Brookshier said. “I believe we’ve met the terms of the agreement.”
City Councilor Rod Hardin said if he were in Jones’ position, he would have considered the $12,000 to be income, and thus, he would have expected to pay taxes on it.
City Attorney Gary Luisi said the city is not in the business of giving tax advice.
“If you’re receiving money, you need to be thinking this is income,” he said. Luisi also noted the contract signed by Jones and Brookshier makes no mention of the city being liable for any future taxes owed on the benefits paid out to Jones.
“Ray may have had thought in his mind that he’d be held harmless, but it’s not in the contract,” Luisi said.
Jones is one of eight former city employees who are affected by the city’s IRS review, but the only one to seek reimbursement for his tax liability.