City of New Orleans employees are receiving letters from the IRS saying they may face penalties and interest for underreporting their 2013 incomes, and it stems from a major error by the city.
Further, two unrelated errors by the city have caused problems for the 2014 tax year as well.
The city of New Orleans inadvertently over reported employees’ 2013 income to the IRS by a full quarter, according to an email from City Comptroller Roy Guercio. Therefore, the employees filed tax return stating their incomes were much lower than was reflected in IRS records. The city has more than 4,000 employees.
Regarding the 2014 tax year problem, City Inspector General Ed Quatrevaux forwarded another email from one of his staff members, where the city said an error involving employees with flexible spending accounts will be corrected and new W-2s would be mailed out. Any employee with this kind of account who already filed taxes likely will have to file an amended return.
Nick Felton, president of the New Orleans Fire Fighters union, confirmed so far receiving three W-2s for 2014. The first two, he said, incorrectly calculated his pension contributions. He received the third just this week.
“And I’m not sure that one’s right,” he added.
As a result of the 2013 issue identified in Guercio’s email, many employees have received letters from the IRS informing them that they could face tax penalties for underreporting their 2013 income. It appears from the comptroller’s email that, while the city may have been aware of the error earlier, it did not inform employees until after a number of employees complained about the IRS notices. The email, obtained by The Lens from Fraternal Order of Police attorney Donovan Livaccari, was sent on March 12, nearly a year after 2013 taxes were due. It was sent to all city employees.
“In some instances, these additional taxes due may be the result of the IRS showing your W2 income from the City of New Orleans higher than what you reported on your tax form for the 2013 calendar year,” Guercio wrote. “During the data submission process for 2013, information regarding income earned for one additional quarter (3 months) was inadvertently sent to the Federal government.”
Guercio went on to explain that the city informed the IRS of the issue and was informed that “the additional information had been deleted.”
“However, it is clear that the information is still being utilized in some cases to compare reported income by individuals to that reported by the City,” Guercio wrote.
The employees would have filed their taxes based on the income figures on an initial W-2 form issued by the city. The city would have had to send different figures to the IRS; city officials haven’t explained how that happened.
Guercio could not be immediately reached by phone. And Mayor Mitch Landrieu’s spokesman did not return The Lens’ requests for comment.
The city has had ongoing problems since replacing its four-decade-old paper payroll system with an electronic one last year. The move was in line with a recommendation in a 2011 report by the Office of Inspector General that the city should move to a payroll system with technical support. In a follow-up report last year, the OIG said the city moved in the right direction when it contracted with ADP Inc, a publicly traded international human-resources outsourcing company.
“The implementation of any system involving large numbers of people will always experience problems in the beginning as people learn how to use it, especially in an environment of multiple employee classifications and payment rules,” Quatrevaux wrote in an email to The Lens. “ADP is used by thousands of corporations and other enterprises, and my own experience is that it is a fine system.”
The city worked with ADP for two years to implement the new system after signing a contract in 2012. City check records show the company was paid more than $2.4 million between December 2013 and November 2014, the most recent month for which The Lens has records. The system went live in spring 2014.
Shortly after, hundreds of employees reported paycheck discrepancies, NOLA.com/The Times-Picayune reported. Still, First Deputy Mayor Andy Kopplin told the newspaper that in 2013, the city, using its old system, almost missed an entire payroll period.
A spokeswoman for ADP did not immediately return a request for comment.