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Home My Public Portal About21-9844 Settlement with the IRSSponsored by: City Manager RESOLUTION NO. 21-9844 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF OPA-LOCKA, FLORIDA, APPROVING SETTLEMENT WITH THE INTERNAL REVENUE SERVICE (IRS) TO RESOLVE THE CITY'S TAX LIABILITY, IN THE AMOUNT OF TWENTY-FIVE THOUSAND, THIRTY SIX DOLLARS AND SIXTEEN CENTS ($25,036.16), REGARDING (1) OFF -DUTY POLICE OFFICER PAY TREATMENT FROM INDEPENDENT CONTRACTOR TO EMPLOYMENT WAGES; (2) TAX ON LIFE INSURANCE EARNINGS AND (3) TAX ON TAKE HOME VEHICLE FOR TAX YEAR 2018; FURTHER AUTHORIZING THE CITY MANAGER TO EXECUTE THE "AGREEMENT TO ASSESSMENT AND COLLECTION OF ADDITIONAL TAX AND ACCEPTANCE OF OVERASSESSMENT" (FORM 2504-T), ATTACHED HERETO, IN THE AMOUNT OF TWENTY-FIVE THOUSAND, THIRTY SIX DOLLARS AND SIXTEEN CENTS ($25,036.16) AND "CLOSING AGREEMENT ON FINAL DETERMINATION COVERING SPECIFIC MATTERS REGARDING WORKER CLASSIFICATION" (FORM 14491), ATTACHED HEREIN, IN THE AMOUNT OF TWENTY TWO THOUSAND, FOUR HUNDRED SIXTY-NINE DOLLARS AND EIGHTY-EIGHT CENTS ($22,469.88) FOR TAX YEAR 2018; PROVIDING FOR INCORPORATION OF RECITALS; PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the City of Opa-Locka ("City") recently underwent a tax audit by the Internal Revenue Service (IRS) related to tax year 2018. The IRS disputed the worker classification treatment of off -duty police officers as an independent contractor rather than as employee wages for purposes of federal income tax withholding, Social Security and Medicare contributions and deductions known as the Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes (all known as federal employment taxes); and WHEREAS, the City timely filed the income of the Off -Duty police officers on the appropriate tax forms during the period under tax audit, January 1, 2018 to December 31, 2018. This income was, and has historically been, treated as independent contractor income to the off -duty police officers and is reported on Form 1099-MISC. The City did not treat this as employee wages; and WHEREAS, during the 2018 tax audit, the IRS communicated with the Social Security Administration, which agreed that the off -duty police officers should be classified as employees of the City and therefore the income should be treated as Resolution No. 21-9844 wages and not independent contractor earnings. With a one year agreement, no amended employment tax forms (i.e Form 941, W-2) or information forms (i.e. 1099, 1096) will be required. In addition, no penalties or interest charges will be assessed. If there is no agreement, the IRS would be required to audit all years within the statute of limitations, which includes tax years 2018-2020; and WHEREAS, the IRS is offering the City a reduced tax rate of 10.68% for both FICA and income tax withholding per IRC section 3509(a) for the purposes of settling the issue. Technically, the Form 1099 amounts for Off -Duty police should be considered supplemental or additional wages, taxed at full FICA rates (15.3%) plus income tax at actual ordinary income rates reported on Form W-2; and WHEREAS, based on $210,392 in 1099 payments paid in 2018 for off -duty police earnings, the tax at full rate is $52,428, but only $22,469 is being assessed at the 10.68% reduced rate being offered to the City; and WHEREAS, in addition, there is a tax liability being assessed on take-home vehicles for employees other than police officers as well as term life insurance benefits provided to employees in excess of $50,000. This tax liability is $2,566.28. This brings the total tax liability to Twenty -Five Thousand, Thirty -Six Dollars and Sixteen Cents ($25,036.16); and WHEREAS, funding for this expenditure will be provided in Budget Amendment #3, to be submitted on March 24, 2021, with the budget for Taxes Account - 19-519997 to be increased from $1,000 to $26,036.16 (with the offset coming from a reduction of Contingency 19-519390). WHEREAS, the City Manager recommends approval of the proposed settlement and the City Commission desires to accept the recommendation of the City Manager in order to resolve City's tax liability. NOW THEREFORE BE IT RESOLVED THAT THE CITY COMMISSION OF THE CITY OF OPA LOCKA, FLORIDA: Section 1. The recitals to the preamble herein are incorporated by reference. Resolution No. 21-9844 Section 2. The City Commission of the City of Opa-Locka hereby approves a settlement with the Internal Revenue Service (IRS) to resolve tax liability, in the amount of Twenty -Five Thousand, Thirty Six Dollars and Sixteen Cents ($25,036.16), regarding (1) off -duty police officer pay treatment from independent contractor to employment wages; (2) tax on life insurance earnings; and (3) tax on take-home vehicle for tax year 2018. Further authorizing the City Manager to execute the "Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment" (Form 2504- T), attached hereto, in the amount of Twenty -Five Thousand, Thirty Six Dollars and Sixteen Cents ($25,036.16) and the "Closing Agreement on Final Determination Covering Specific Matters Regarding Worker Classification" (Form 14491), attached hereto, in the amount of Twenty Two Thousand, Four Hundred Sixty -Nine Dollars and Eighty -Eight Cents ($22,469.88) for tax year 2018. For purposes of this Resolution, all Attachments shall be referred to as Composite Exhibit "A". Section 3. This Resolution shall take effect immediately upon adoption, and is subject to the review of the State of Florida Financial Emergency Board for the City of Opa-Locka, FL. PASSED AND ADOPTED this 24th day of March, 2021. Attest to: 1_L nna Flores C Clerk Moved by: Commissioner Burke Seconded by: Commissioner Davis VOTE: 4-0 Matthew Pigatt, Mayor Approved as to form and legal sufficiency: FoA Burnadette NorrisIWeeks, A. City Attorney Resolution No. 21-9844 Commissioner Burke YES Commissioner Davis YES Commissioner Taylor NOT PRESENT Vice -Mayor Williams YES Mayor Pigatt YES City of Opa-locka enda Cover Memo n City Manager John E. Pate CM Signature: ( Commission Meeting Date: Mar 10, 2021 Item Type: (EnterX in box) Resolution ' ' ' . ' ce Other X Fiscal Impact: (Enter X in box) Yes No Ordinance Reading. (Enter X in box) 1st Reading 2' Reading X Public Hearing: (Enter X in box) Yes No Yes No Funding Source: Account# : (Enter Fund & Dept) Ex: Advertising Requirement (Enter X in box) Yes No Contract/P.O. Required: (Enter X in box) Yes No RFP/RFQ/Bid#: X Strategic Plan Related (Enter X in box) Yes No Strategic Plan Priority Public Safety Bus. & Economic Dev Enhance Organizational Quality of Education QuaL of Life & City Image Communication Area: Strategic Plan Obj./Strategy: (list the specific objective/strategy this item will address) X = C] • El MI Sponsor Name City Manager's Office Department: Short Title: A resolution of the City Commission of the City of Opa-Iocka, Florida to resolve tax liability in the amount of $25,036.16 with the Internal Revenue Service (IRS) over (1) Off -Duty police officer pay treatment from independent contractor to employment wages, (2) tax on life insurance earnings and (3) tax on take home vehicle for tax year 2018. Staff Summary: After undergoing a tax audit by the Internal Revenue Service (IRS) related to tax year 2018, the IRS disputed the worker classification treatment of Off -Duty police officers as independent contractor and instead to be treated as employee wages for purposes of federal income tax withholding, Social Security and Medicare contributions and deductions known as the Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes (all known as federal employment taxes). The City of Opa-locka ("the City") timely filed the income to the Off -Duty police officers on the appropriate tax forms during the period under tax audit, January 1, 2018 to December 31, 2018. This income was treated as independent contractor income to the Off -Duty police officers and reported on Form 1099-MISC, the City did not treat this as employee wages. Per discussion with the Human Resource and Police Department, this has been how this income has historically been reported. During the 2018 tax audit, the IRS communicated with the Social Security Administration and agreed that the Off -Duty police officers should be employees of the City and therefore the income treated as wages and not independent contractor earnings. The IRS also reviewed City records and documents such as policies and procedures and direct communication to gain an understanding of the City's position. The IRS's attorney also agreed with the IRS's position on the matter based on the evidence examined, as a result, they hope to settle with the City for the 2018 tax year alone and not have to open the 2019 and 2020 tax years for audit and investigation. With a one year agreement, no amended employment tax forms (i.e. Firm 941, W-2) or information forms (i.e. 1099, 1096) would be required. In addition, no penalties or interest charges would be assessed. For any unagreed issues or settlement, the IRS is required to audit all years within the statute of limitations, which includes tax years 2018-2020. The IRS is offering the City a reduced tax rate of 10.68% for both FICA and income tax withholding per IRC section 3509(a) for the purposes of settling the issue. Technically, the Form 1099 amounts for Off -Duty police should be considered supplemental or additional wages, taxed at full FICA rates (15.3%) plus income tax at actual ordinary income rates reported on Form W-2. Based on $210,392 in 1099 payments paid in 2018 for Off -Duty police earnings, the tax at full rates is $52,428, but only $22,469 is being assessed at the 10.68% reduced rate being offered to the City. In addition, there is a tax liability being assessed on take home vehicle for employees other than police officers and term life insurance benefits provided to employees in excess of $50,000. This tax liability is $2,566.28. Financial Impact - Funding for this expenditure will be provided in Budget Amendment #3, to be submitted on March 24, 2021 with the budget for Taxes -19-519997 increased from $1,000 to $26,036.16 with the offset coming from a reduction of Contingency -19-519390. Proposed Adieu= Staff recommends that the City Commission approve a settlement with the Internal Revenue Service (IRS) to enter into an Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Form 2504-T) in the amount of $25,036.16 ($22,469.88 + $2,566.28) and Closing Agreement On Final Determination Covering Specific Matters Regarding Worker Classification (Form 14491) in the amount of $22,469.88 for tax year 2018. Attachment; See attadonent 02/22/2..^.21 1:40:40 PM —0500 IRS PAGE 5 OF 5 Agreement to Assessment and Collection c ;',: ditional Tax and Acceptance of Overassessment (Employment Tax Adjustments blot Subject to IRC 743 Worker Classification or Section 5301ssues Not Adcbessed In tleis Elam) Date received by Intemel Revenue Sera= Taxpayer ;s) :tame City o1 •. •: 1 DIB/A SSN1BN 59-6000394 Address ::1 Ir.::payer(s) (number, street) 780 ri,' City/Town Oyu Locke State FL ZIP code 33054 Ad;::stment to Tax, Credits and Penalties T:t- = :•r itt,:l 'r+•- Return Form Number Kind of Tax and Internal Revenue Code Section Amount of Tax Credit Increase Pens (Decrease) lty 3-31-IE1 1' -3t -I1 '41 FlCA&Fl7XrrC3101,?tu&3402 $2,566.28 Total S2,566.28 I cons•:. • •;,e immediate assessment (increase in tax and penalties and/or decrease in credits) and the collection of any such amours• �'_lilion 1 accept any overassessn ant (decrease in tax and penalties and/or increase in credits) shown above. I also agree b any ; ' vs provided by law. Sign Here . Sign Here Sign Here Mote: If you C' 7. assessment of the amounts shoe•.^: in :*.is agreement your signature will expedite our edjustrnerrt to your account Your consent will nct pre • • .:m ling a claim for refund (after you r•. a•.•e paid the talc) if you later believe you are mtltlell to a reltutd. R will not prevent US tom later deem, :essary. that you awe additional t3,; a _ end the time provided by law for either action. The any Inc; • • ::1 ,our employment tax returns as (elected on this agreement did net include an examination fC< anployrnent tax purposes co/whether ,,ot:b7 be treated as employees. Who rr: Ifyou a : `7 This agreement for a partnership, 311 partners must sign. However, one partner may stet with appropriate evidence of orthonzation to act for ••.::,iP For a rater the name of the corpcsali,e, ' ' 1.•J the signature and line of the oficer(s) authorized to sign. For or ...;noy acting under a power of 41 r+f c rr.wcr cf attorney must be seat with this tam if not previously fried wth us. T ,. Abatement amount under :RC 3402(d) and/or IRC 3102(1)(3) - See explanation on Form 46®6 :Return Form .. n Number - 2 for R Code -i::c11t Tax Period Ended Return Form Number IRC Code Credit for Abatement 10-20171 Cat9lcp Nun.'.` -i f•.,71177.: pub1Sh.niairS.gad Department of the Treasury - Internal Revenue Service 02/22/2021 1:40:40 PM -0500 IRS PAGE 4 OF 5 Page 2 Taxpayer Taxpayer name City of Opa Locka BY Date signed Title Taxpay " "^presentative 8Y Date signed Comm': saner of Internal Revenue BY Date signed Title Catalog f:::.,:her 62643W www.irs.gov Form 14491 (&2013) 02/22/2021 1:40:40 PM —0500 IRS PAGE 3 OF 5 Form 14491 (May 2013) Department tithe Treasury -internal Revenue Service Closing Agreement On Final Determination Covering Specific Matters Regarding Worker Classification Under section 7121 of the Internal Revenue Code ("IRC"), City of Opa Locka, 780 Fisherman Street, Opa Locka, FL 33054, Taxpayer Identification Number 59-6000394, ("taxpayer) and the Commissioner of Internal Revenue ("Commissioner) make the following closing agreement: WHEREAS, there is a dispute between the parties as to whether certain workers classified by taxpayer as Off -duty police officers are independent contractors or employees of taxpayer for purposes of federal iincome tax withholding, Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes ("federal employment tax's WHEREAS, the taxpayer is presently treating the Off -duty police officers as independent contractors; WHEREAS, the taxpayer has timely filed Forms 1099 for each of its Off duty police officers for all applicable periods from January 1. 2018 through December 31, 2018, in accordance with the provisions of paragraph 3.02 of Rev. Proc. 85-18. 1985-1 C.B. 518. and Rev. Rul. 81-224, 1981-2 C.B. 197; and WHEREAS, the parties wish to resolve this dispute for all Off -duty police officers engaged by the taxpayer on or after January 1, 2017. NOW IT IS HEREBY DETERMINED AND AGREED for federal employment tax purposes than: (1) The Internal Revenue Service will assess and the taxpayer will pay the following amounts b the United States Government in full discharge of any federa I employment tax fiabiIiity it may owe for the periods shown below resulting directly or indirectly from its failure to pay and/or withhold federal income tax, FICA, or FUTA taxes on the payments to its Off -duty police officers Period 1-1-2018 to 12.31-18 Type of Tax FICA & Income Tax WH Amount to be Amassed Tax Penalties $22.469.88 SORE! (2) The Internal Revenue Service will not disturb taxpayers classification of such Off -duty police officers for federal employment tax purposes for any period from January 1, 2017 through March 31, 2021. (3) Beginning April 1, 2021 and for all periods thereafter, Off -duly police officers and persons performing equivalent duties regardless of taxpayers fob titles will be treated as employees for all federal employment tax purposes. Closing Agreement With City of Opa Locka (4) The taxpayer waives any right it may have to claim relief fader section 530 of the Revenue Act of 1978. (5) IRC Section 6205 shall apply to the amounts contained in paragraph (1) above, except FUTA tax. This agreement is final and conclusive except: (1) the matter it relates to may be reopened in the event of fraud, mal easarxx, or misrepresentation of material fads; (2) it is sutject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notvithstanc irg any other law or rule of taw; and (3) if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date. that applies to the tax period. By signing, the above parties certify that they have read and agreed to the terms of this document. Catalog Number 82648141 www.irs.gar Form 14491 (5.2013) 02/22/2021 1:40:40 PM -0500 IRS PAGE 2 OF 5 Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Employment Tax Adj Istrnents Subject to IRC 743E9 Dab ma:i ed by Internal Revenue Sluice Taxpayer(s) name City of Opa Locke DA3fA SS UEIN 59-6000394 Address of taxpayer(s) (number. steed 780 Fisherman Sir�r City/Town Opra L0tka State FL ZIP code 33054 Adjustment to Tax, Creeds and Penalties Tax Period Ended Return Form Number Kind of Tax and Interne! Revenue Code Section Amount of Tax Credit(D4 t Inc ease Penalty 3-31-18 to 12-31-18 941 MICA & I1TW MC 310.311 & 1402 T22,469.8S Total $22,469.88 I consent to the immediate assessment (increase in tax and penalbes and for decrease in credits) and collection of any such amounts. In addition, I accept any overassessment (decrease in tax and penalties andkr increase in credits) shown above, plus any interest provided by taw. I understand that by signing this agreement I am waiving the restrictions on assessrrtatrt provided in section 7436(d) and 6213(a) of the Internal Revenue Code of 1986. Sign ► Here Tale Date skin hi, Here Date Sign Here , Nate: F you consent to the assessment of the amounts shown in this agreement ent, your signaR rewIl expedite our adjustment to your account Your consent will not prevent you from filing a dam for refund (after you have paid the tax) if you later believe you are entitled to a refund. It will not prevent us from later determining, if necessary, that you owe additional tax; nor extend the time provided by law for either action, Who Must Sign If you are snaking this agreement for a partnership, all partners must sign. Howwever, one partner may sign with appropriate evidence of authorization to act for the partnership. For a corporation, enter the name of the corporation followed by the sire and title of the dficer(s) authorized to sign. For an agent or attorney acting under a power of attorney, a power of attorney must be sent with this form if not previously filed wlh us Memo: Abatement amount under IRC 3402(d) andlor IRC 31 - See exptatration on Form 4666 Tax Period Ended Retum Form Number IRC Code Credit for Abatement Tax Period Ended Return Form Number IRC Code Credit for Abatement arm L.'fU4— 1 (Rev. t0-21717) Catalog Number 69768F publish no.irs.gov Department d the Treasury - Internal Revenue Service CISIRS Department of the Treasury internal Revenue Serviee OGDEN UT 84201-0038 008830.998568.359675.3596 1 AB 0.428 693 iiililiillilli,iuiiihlullllullluililil9.0.11lliillllliilllllll CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 008830 CUT OUT AND RETURN THE VOUCHER AT THE BOTTOM OF THIS PAGE IF YOU ARE MAKING A PAYMENT, EVEN IF YOU ALSO HAVE AN INQUIRY. he IRS address must appear in the window. 0440517325 SODCD-TE INTERNAL REVENUE SERVICE OGDEN UT 84201-0038 IIlutuuIuII1lIIIIIIIu,,IIIIItIIII IIIIIuI,IIlIII Use for payments Letter Number: LTR4384C Letter Date : 2021-02-25 Tax Period : 201912 111 11111111111111 *596000394* 1 CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 596000394 GJQ CITY 01 2 201912 670 00000000000 008830 IRS Department of the Treasury Internal Revenue Service OGDEN UT 84201-0038 CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 In reply refer to: 0440517325 Feb. 25, 2021 LTR 4384C 0 59-6000394 201912 01 0 00027236 BODC: TE Taxpayer Identification Number: 59-6000394 Tax Period(s): Dec. 31, 2019 Form(s): 941 Dear Taxpayer: Thank you for your inquiry dated Oct. 30, 2020. We processed the tax increase of $ S5,500.84 as indicated on your timely filed amended return, Form 941-X received on Oct. 5, 2020. Payment for the tax increase is due at the same time you file a timely amended return. We did not receive a timely payment. If you have any questions, please call us toll free at 1-800-869-0115. If you prefer, you may write to us at the address shown at the top of the first page of this letter. A copy of this letter and any referenced enclosures have been forwarded to your authorized representative(s). 0440517325 Feb. 25, 2021 LTR 4384C 0 59-6000394 201912 01 0 00027237 CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 Sincerely yours, r Sharon Davies Program Manager, AM OPS 2 Enclosurets): Copy of this letter IRS Department of the Treasury Internal Revenue Service 008830 OGDEN UT 84201-0038 CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 In reply refer to: 0440517325 Feb. 25, 2021 LTR 4384C 0 59-6000394 201912 01 0 00027236 BODC: TE Taxpayer Identification Number: 59-6000394 Tax Period(s): Dec. 31, 2019 Form(s): 941 Dear Taxpayer: Thank you for your inquiry dated Oct. 30, 2020. We processed the tax increase of $ $5,500.84 as indicated on your timely filed amended return, Form 941-X received on Oct. 5, 2020. Payment for the tax increase is due at the same time you file a timely amended return. We did not receive a timely payment. If you have any questions, please call us toll free at 1-800-869-0115. If you prefer, you may write to us at the address shown at the top of the first page of this letter. A copy of this letter and any referenced enclosures have been forwarded to your authorized representative(s). 0440517325 Feb. 25, 2021 LTR 4384C 0 59-6000394 201912 01 0 00027237 CITY OF OPA LOCKA 780 FISHERMAN ST 4TH FL OPALOCKA FL 33054-3806 Sincerely yours, Sharon Davies Program Manager, AM OPS 2 Enclosure(s): Copy of this letter