IRS fined Portland schools more than $1 million in past 4 years

The IRS has fined Portland Public Schools more than $1 million since 2019, according to documents that reveal the district struggled to manage its finances for years before its payroll system broke down last fall.

The district continues working to remedy the payroll problems that resulted in hundreds of the district’s 1,900 employees going unpaid or underpaid for weeks or months.

The IRS fines levied on the district between 2019 and 2022 stem from specific tax filing violations, including late filing between 2017 to 2020, according to documents obtained by the Portland Press Herald through a Freedom of Access Act request. All of the fines were sent to the district about one to two years after the tax filing period when the problems occurred.

The district has appealed all of the fines and asked for abatements, citing limited staff and resources, technological challenges, staff turnover, and complicated tax forms – many of the same issues that it cited as reasons for its payroll crisis in the fall. The IRS has waived at least two fines totaling around $200,000. It is unclear from the documents provided whether there has been a resolution for four other fines totaling $140,000.

Still pending is an appeal of a $1,074,000 fine levied last year for missing a 2018 filing deadline for forms related to health insurance. Co-interim Superintendent Aaron Townsend and School board Chair Sarah Lentz both said Thursday that they believe the fine will be abated because the specific issue that led to the penalty was resolved and has not occurred in any year since.

When asked about the fine and the appeal, an IRS spokesperson said that the agency could not comment on particular taxpayer matters.

In its appeal request, the district said that at the time it had “limited staffing and financial resources,” that preparing the form for its “large number of employees” was “extremely challenging and time-consuming,” that the district was having trouble with certain relevant software and that its payroll manager had recently left.

This information highlights the longevity of the district’s payroll challenges, which appear to have existed long before the payroll meltdown that began in the fall and left some employees struggling to pay rent and burdened with interest and fees. The IRS enforcement actions also point to problems well before outside auditors warned in spring 2022 that the district’s financial system was in trouble.

The district has had long-term challenges with finance department turnover that have affected its operations, Lentz said, and is working to increase staffing. “Our priority is figuring out how the finance department can function at its highest level,” she said.

Lentz believes the district will be able to file taxes correctly and on time this year and is not worried it will incur further IRS fines. “We’re shining a spotlight on all things finance,” she said. “We’re really paying attention to every detail.”

Townsend echoed Lentz. “We feel like we’re in good shape in terms of this current year,” he said.

While the district is working to get its $1 million IRS fine waived, it also is remedying outstanding issues brought to light and caused by the 2022 payroll crisis. Both district officials and employee union leadership said the department has work to do.

“We recognize that there are still significant problems that remain unresolved, and we are continuing to attempt to resolve them,” Portland Education Association President Kerrie Dowdy said in an email to union members Saturday.

Between Nov. 20, 2022, and Jan. 24, 2023, around 1,400 payroll concerns regarding wages, stipends, incorrect payment, missed payments, paid time off and benefits were logged with the district. Around 70 percent have been resolved.

Although the district has yet to rectify all pay issues, Townsend said the district has made significant progress and has fixed many of the systemic issues that led to the payroll crisis.

“In the fall we had more systems issues, but now we’re seeing more individual issues,” he said. “We’re not at the finish line in terms of resolving each individual employees’ questions but we’re working towards that.”

The district received 36 concerns or questions in the last pay cycle at the end of January, Townsend said.

Since the peak of the payroll issues, the district has increased payroll department staffing.

From July to December 2022, the payroll department had one full-time temporary manager and a part-time specialist. It now has two permanent and one temporary staffers and the district is searching for a third permanent employee as well as a project manager to help it outsource its payroll. The district is scheduled to outsource payroll processing to ADP Inc. by the summer.

“We feel deep responsibility to get this right and recognize we’re not there yet and we hope to continue to make progress on this front so we can rebuild employee and community trust in our system,” Townsend said.