Readers: For several weeks now, Board candidate Bob Frank and others have pounded on Dan Forgeron, current Board Treasurer and a candidate for reelection, as well as reelection candidate Jerry Gardberg with a series of false and misleading accusations regarding the contractual process for handling payroll with RMI, the Association’s management company.
Though Mr. Frank has taken the lead on these false accusations, Board candidates Forrest Fetherolf and Don Schramski have bought into it.
I am particularly disappointed in candidate Schramski, who I thought was familiar with the details of the current management agreement but apparently is not.
I urge my readers to take the time to read Forgeron’s response to the unwarranted attacks, as published below, and contact him at dan.forgeron@scacai.com or by phone at 270-8717 if you have questions or want to discuss these matters.
If you truly WANT the correct facts, you will take time to read Dan’s statement.
In the statement below, you will see Dan’s attention to exhaustive detail and true facts, and you will also perhaps learn details about the pending IRS audit appeal.
If you agree with Dan’s complete and accurate description, please consider circulating this article to all your friends and neighbors, along with a suggestion that they vote for reasonableness and professionalism rather than for falsehoods and distortions.
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Dan Forgeron’s Statement:
As the election season winds down, on certain blogs there has been a recent barrage of misinformation and recriminations against our management company, the Board and Jerry Gardberg’s and my candidacies. You have heard me say I do not read the blogs, but to keep me informed of what the “dark side” of the community is up to, some of my supporters have forwarded postings that are maligning, innuendo-filled, inaccurate and outright wrong. Up until this point I have chosen not to respond or answer their ill-informed and erroneous statements.
However, we are at a seminal point in the progress of the governance of our community. You have a choice to continue the positive and professional Board governance that began 3-4 years ago or you may choose to return to a time when the only thing accomplished was to disenfranchise the community from participating in our processes. I am compelled to now set the record straight and request your support of Jean Capillupo, Jerry Gardberg and my candidacy to the Board of Directors.
Payroll – The Arendt/Goodman and Frank forums have recently cited “facts” unearthed by Nelson Orth regarding the handling of the bi-weekly payroll reimbursement to RMI for the SCA staff. They state that they cannot find reference to bonuses in the RMI contract, that we should not pay benefits or 401K matching funds. Further, they raise the specter that there must be some malfeasance, or as Frank in his typical fashion alludes to it, “fraud" on the part of RMI and/or the Board because we approve an automatic transfer of the reimbursement after it has been drawn from our accounts.
Pure poppycock!
Section 1.22 of the RMI management agreement clearly states the payroll process and exactly what is included. This paragraph was basically unchanged from the original agreement and was in full effect while Mr. Frank was a Board member. Further, it clearly establishes the fact that payroll will be “transferred” to reimburse RMI 48 hours before each bi-weekly pay date, in other words a pre-authorized draft of the account. Section 1.22 also establishes the process for review and approval by the Board.
This is how the process works in practice:
1) Each year during the SCA annual budget process, the management company presents a staffing/personnel request to the Finance Committee and Board. Through the budget process we establish a payroll spending limit by accepting the plan. This personnel plan, approved by the Board, identifies the total personnel costs for the entire year. Per the agreement, “the total cost of personnel shall include the actual wages paid plus a labor burden [benefits]…………however, the total cost, including any incentive bonus, shall not exceed the budgeted amount for the applicable year.” Thus the total cost of personnel, once approved, becomes the authorized spending limit for the budget year. This establishes the maximum amount that RMI may draft during each budget period.
2) Reimbursement of payroll is a time-sensitive matter. Employees and payroll tax deposits to various government agencies need to be paid on time to avoid penalties. RMI utilizes the automated payroll services of CompuPay to process their entire payroll, and SCA personnel are but a part of the process. By custom, payroll is generally processed within a day or two of the actual pay date. The third party processor automatically drafts RMI’s bank account for the payroll and related taxes. It is stipulated in the agreement that SCA shall transfer electronically a bi-weekly amount to reimburse RMI for total payroll costs associated with the SCA staff. The $1.6 million referred to by Orth, Frank et al is simply the accumulation of six months all in wages and benefits.
3) Per the agreement, “the Association shall reimburse the Managing Agent bi-weekly the total costs of the personnel to operate the office and perform the fiscal, physical and administrative services called for in the Management Agreement.” RMI processes the electronic transfer and submits a summary of the transaction for review and acceptance by SCA Board members, generally the president and treasurer. The bi-weekly amount is compared to the pre-authorized budget limit. In addition the Finance Committee reviews the personnel budget on a monthly basis. Variances, if any, are fully reviewed and questioned for appropriateness. In fact, through February 2012 the total payroll is under budget by $4,036. Further, we have added a review process not in the agreement. On a periodic basis an RMI detailed payroll register is reviewed by a Board member to assure the personnel plan is being adhered to.
IRS 2007 Audit – In mid-2010 SCA was notified that the IRS intended to audit its 2007 1120 tax return. What was unusual about the audit notice was the IRS had stopped selecting 2007 fiscal years and had moved onto 2008. They were able to audit 2007 as the statute of limitation had one (1) month remaining. It is my belief that two events converged at the IRS, causing them to call for the audit: 1) An inquiry from Frank/Stebbins/McCullough dated October 5, 2009 to the IRS raising their concerns about the SCA 70-604 excess funds election and 2) the forgery charges filed against two former Board members by Frank and Stebbins.
When tax issues arise in business it is not untypical to request information from the IRS. However, it is most prudently done by submitting an anonymous inquiry through a third party, such as a CPA or attorney. By doing it in this manner one does not expose the taxpayer to the potential of an audit and the possible assessment of taxes, penalties and interest. Instead Frank/Stebbins/McCullough specifically identified SCA, its CPA and legal counsel in their inquiry, raising two issues; 1) their belief that only shareholders could make the election on excess funds, and 2) can distribution of excess funds be withheld to build working capital. It should be noted that neither of these two points were cited as reasons for the assessment resulting from the audit.
On November 20, 2009 Frank and Stebbins filed forgery charges against Roz Berman and Roger Cooper because they simply signed a duly passed Board resolution on the IRS 70-604 election for the 2007 tax return. One would need to ask them why they felt it was necessary to take such action and what they hoped to gain. If it was based on their belief that Board could not make the election, they were in error. NRS provides the authority for the Board to take the necessary action. In fact this was acknowledged by the IRS auditor who accepted the validity of the election in her Form 886A report.
During the course of the Henderson Police Department’s investigation into the Frank and Stebbins complaint, the investigating officer contacted the IRS to have questions about the SCA tax filing answered. It is this HPD contact in conjunction with the Frank/Stebbins/McCullough letter that caused the IRS to audit the 2007 tax return. After their exhaustive investigation, the HPD found there was no wrongdoing on the part of the Board members and closed the charges.
Note that the notice of the audit and IRS field work began in 2010, clearly after the above two contacts were made to the IRS, supporting the belief that they caused the IRS audit. On February 3, 2011 we received the IRS audit examination report dated January 31, 2011 for the tax year ended December 31, 2007. The form 4549 “Income Tax Discrepancy Adjustments” indicates a balance due of $1,345,000. The adjustments primarily relate to the implementation of Revenue Ruling 70-604 by the Association. It is important to note that the authority of the Board to adopt the Revenue Ruling was not questioned, one of Mr. Frank’s assertions. The report provided us with the ability to challenge the proposed adjustments. In March 2011, the Association filed through legal counsel a declaration with supporting information protesting the findings and noticing our intent to appeal.
Mr. Frank has claimed “there are two main elements of the IRS notification: (1) assessment of back income taxes because of a falsely-declared exemption in 2007, and (2) fines and penalties for filing a false tax return.” This claim by him is unfounded. Frank’s erroneous statements have been repeated on the Arendt/Goodman forum and parroted by current Board candidates Fetherolf and Schramski stating at various times that SCA filed an illegal tax return and the amount due was a fine. Further, Frank and Stebbins use the audit results as justification and proof that their HPD complaint was proper. Yet there is nothing in the IRS report that supports their belief.
The audit was a routine standard IRS audit. They have never alleged special circumstances for the audit or that the return and/or the 70-604 election was fraudulent or false in any manner, nor have they charged that anyone acted in a criminal manner.
Regarding Frank's second element, “penalties for filing a false income tax return” is a misrepresentation of the proposed assessment. The IRS is simply disallowing a deduction claimed as a result of the valid 70-604 election. As a result of their disallowance they have included a penalty under 6662(d) Substantial Understatement in the amount of $224,133. No fines have been suggested during the audit and the 4549-A does not attribute that the underpayment was due to tax-motivated transactions, negligence or fraud.
There are those, led by Frank, Stebbins, Arendt/Goodman forum and candidates Fetherolf and Schramski, who say we should have simply paid the tax and penalty and moved on. In my opinion and that of expert counsels, payment would not be a prudent business decision. The position that the IRS is always correct and one never wins an appeal is naive and incorrect.
We are in the middle of negotiations to resolve this matter through the IRS appeal process. As reported by Jim Long at the last Board meeting, our counsel met with the appeals officer and made progress toward coming to a mutually agreeable settlement. As reported, this process could continue for several months. However, it is my personal opinion that the Association has strong valid objections to the proposed 4549 adjustments. I believe we are on a path to settling this matter and that the final amount, if anything is due at all, will be substantially less.
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