CARBON HILL - Mayor April Kennedy Herron told the Carbon Hill City Council Tuesday night the city still owes the IRS $500,000 in unpaid payroll taxes over three years - and that the agency is taking the $10,000 in proceeds of the sale of the old water works site as part of that payment.
The matter came up as a lien the IRS took out on the property in May was put on the agenda. The council voted again Tuesday to sell the plant and property after the discussion. District 4 Councilwoman Judy Hurst was absent.
Herron told the council she has been in contact with the IRS official who is handling the city's case.
"We can still sell the property," Herron said. "However, the proceeds will go to our debt. So we won't get to keep the money. We'll have to send it straight to the IRS."
She said she had anticipated using the funds "to work on the police cars," although the primary purpose for the sale was to remove liability from the city, considering the condition of the plant.
"It was not what I was hoping, but it also keeps us in their good graces," she said.
District 3 Councilman David Phillips, who was appointed July 28 last year, asked how much is owed to the IRS. Without much response from the others, he then asked if the amount was higher than $10,000 and other said it was. He then asked if the IRS would settle for $10,000. "Not even close," Herron said. "No."
She then took a long pause and then said, "For three years our payroll taxes were not paid and we owe the IRS a little over $500,000. I've been in the process of a year working with our accountant and the IRS to work on the settlement, to maybe try to do a settlement in kind or work out a payment arrangement that will not hurt the city.
City Clerk Sherry Garner said the non-payment took place near the end of 2016 and all of 2017, 2018 and 2019. "It basically stopped when we got Sherry in" as city clerk, Herron said. She said after the meeting the weekly payroll taxes had not been paid by a previous clerk who no longer works with the city.
The previous city clerk, Nanette Brown, was removed from that post in October 2019 to concentrate on magistrate duties. She then went on administrative leave, and then was gone from that position by early 2020.
According to current and recent municipal officials, they determined in 2019 that city records were not kept and some checks were not deposited or paid for a period stretching as long as 2016. Audits were not done for years, and large amounts of money were said to be unaccounted for over several years, including $65,000 in alcohol tax revenue alone. The city was missing a massive paper trail of records, going back about three years, and officials have worked with other parties involved to solve a large mystery.
Phillips said "the pros" of getting rid of the old water works property is that it removes liability, saves on insurance. The single offer on the property was not not near what the council had hoped for anyway, he noted. The bid was from Timothy and Cindy Wright for $10,000 cash - the minimum price set by the council. Officials also agreed the property is of no use to the city.
Herron said she could not make the decision alone on the property, although council members quickly seemed to agree it would be best to sell it.
"I want to get the IRS off of us and have this taken care of as soon as possible," she said, adding that fact the city is giving $10,000 at once to the agency "can't be anything but good for us."
It was mentioned in discussion the IRS situation happened before most of the current council was in place. Herron noted she had been on the council "but I was the one who raised the alarm in the first place."
After the meeting, Herron said she didn't know how much would be saved on the insurance by the sale, noting the policy was recently renewed.
Herron said the council had just voted to sell the property recently when the city received a notice from the IRS about the lien on the property. "But that is not something that happens overnight, so I'm sure it was in the process for a while," she said. "We've known about the tax thing. We've been in negotiations for quite a while."
She said she did not know the severity of the situation until after she took office as mayor on July 1, 2020. "I knew we owed some taxes, but I would have never dreamed it was that much until I took office as mayor," she said. "It just didn't get paid."
Currently, the city is regularly paying what is now being owed for current taxes - but not the back taxes, as that schedule is still being negotiated, she said.
She characterized the negotiations as very positive and that the IRS official has been good to work with. Weekly discussions are being held with the woman, which Herron called "really sweet" and is genuinely working with the city. "All things considered, she understands our situation and where we are coming from," she said.
"I've got a good outlook on it. I think it is going to be good. I think it is going to be OK in the end," Herron said.