City of Nashua
Office of the Chief Financial Officer
229 Main Street - Nashua, NH 03060 Fax tao 48003993
TO: Mayor Jim Donchess
Finance Committee f) b
FROM: John Griffin, Chief Financial Officer \
DATE: June 14, 2016
SUBJECT: Internal Revenue Service Audit
The purpose of this communication is to notify the Finance Committee that over the course of the past nine
months, Financial Services has been undergoing a randomly selected audit with the Internal Revenue Service
(IRS). The objective of the audit was to review all Accounts Payable transactions for calendar years 2013 and
2014 in an effort to monitor compliance in the following two areas:
* Proper classification of Employees vs. Independent Contractors
* Proper treatment of taxable fringe benefits to employees
During the audit, the IRS noted a number of Accounts Payable vendor payments to individuals performing the
following services:
3s City Camp Counselors
City Game Officials
e Cable TV Videographers
School Tutors
The IRS determined that the individuals performing the above services in 2013 should not be classified as
vendors and should to be treated as employees subject to withholding and employment taxes.
The IRS also examined employee reimbursements and concluded that wellness reimbursements for gym dues
made during 2013 and 2014 to Police Department employees are a taxable fringe benefit and are also subject
to withholding and employment taxes.
The audit findings result in a total tax payment due to the IRS in the amount of $19,473.72. No penalties or
interest will be assessed and no additional taxes will be imposed for 2014, 2015 and 2016 provided that the
City agrees to comply with the reclassification requirements.
Sufficient funds are available within FY2016 departmental budgets, account #52100 FICA/Medicare taxes, to
cover the additional tax due.
