At issue is the part of each employee's paycheck that the employer takes out for income, Social Security and Medicare taxes. That money is supposed to go to the federal government right away. When it doesn't, the IRS comes calling.
As of April, 29 remote groups from the city of Kivalina to Circle Village Council face payroll tax liens from the IRS, according to a tally reported by the Division of Community and Regional Affairs.
For small cities trying to fix past mistakes, the debt can snowball into a mountain of interest and penalties. The tax trouble can keep nonprofits from getting grants and employees from earning credit toward their Social Security benefits, said Scott Ruby, deputy director of the division.
A single nonprofit, the Aniak-based Kuskokwim Native Association, owes more than half of the total payroll tax debt in rural Alaska.
Using money from state and federal grants, the association runs fishery programs, delivers meals to elders and gives scholarships to high school kids in a dozen Kuskokwim-area villages from Lime Village to Lower Kalskag.
It faces $2.6 million in payroll tax liens, according to the state. The IRS said it doesn't talk about specific liens, but much of that is for penalties and interest, the nonprofit said.
Executives say the trouble began years ago, with the social service agency struggling to pay its bills, bouncing checks to employees and narrowly avoiding closure at the hands of the IRS.
"We have no idea how we can ever pay this back," said finance director Samantha Gunes.
DEEP HOLES
The state started tallying liens against communities with 1,500 people or fewer in 2007 in order to identify groups "struggling with cash flow or management issues," according to the report.
In a state that thrives on public funding, that list can be a key tool for government agencies and foundations that give grants, because it reveals communities that are deep in debt or whose grants might go to the IRS.
"The fear is and continues to be that you're putting these grant monies at risk," Ruby said.
Once a town gets behind in payments, it's hard to recover.
Janet Mitchell began working in late 2005 as city manager in Kivalina, about 80 miles northwest of Kotzebue. Before she arrived, she said, employees were getting paid but taxes weren't.
The IRS placed $132,000 in payroll tax liens against the city for 2002 to 2005, according to the state. Mitchell worked three-hour days for her first year on the job to save money. The bingo clerk worked only in the afternoon, and slowly the city began catching up.
It now makes monthly payments to the IRS but doesn't seem to be making a dent in the overall bills. Mitchell said it will be a miracle if the debt is paid off in her lifetime.
Taxes have to be paid, she said, you can't expect the IRS to be lenient. .
"I like a challenge and trying to get (rid of) this IRS debt," she said. "I know it's not going to happen right away, and I accept that. But that's not going to stop me from trying to find an answer or a resource."
In the Yukon River village of Circle, the village council faces about $250,000 in payroll tax liens, the state says.
"No comment," said a woman who answered the council phone Friday. She referred questions about the liens to the village council chief, who couldn't be reached for comment.
As burdensome as those IRS debts might be, they're lightweight compared with the Kuskokwim Native Association's trouble. As of April, the Kuskokwim nonprofit took on 29 payroll tax liens in eight years, representing 10 times more money than any other agency on the list.
"When they hired me, it was in danger of being shut down. Doors closed, any assets being given to the IRS," said executive director Cynthia Navarrette, a former Alaska Native Health Board president who returned to her hometown of Aniak to try to pull the non-profit from the brink.
STOP THE BLEEDING
Navarrette and Gunes, who are sisters, say a 2002 lawsuit crippled the cash-strapped non-profit, spinning the agency into debt. A former employee won hundreds of thousands of dollars in a lawsuit over back pay, Gunes said. Legal fees ballooned the bill.
The nonprofit runs on grants, which are meant to pay for specific projects, leaving only a fraction for running the agency. It couldn't cover the extra expense and fell short on its income tax payments, Gunes said. "We had our own payroll checks bouncing."
Still, the liens against the association date back to 2000, meaning the tax trouble started before the suit.
Asked why, Gunes said she couldn't remember the details.
"I think there was some confusion in that time, what was owed."
The association has 11 full-time, year-round employees and runs on an annual budget of about $1.5 million, said Navarrette, who became executive director in August.
The nonprofit has filed its payroll records on time over the past two quarters and, as a result, the IRS has been willing to negotiate a payment plan that would put a lid on the growing debt, the executive director said.
"It's a company worth saving."
WHAT ABOUT WORKERS?
As for employees, Ruby said the Division of Regional and Community Affairs has seen cases where a worker doesn't get credit toward his or her Social Security benefits for a given year because the boss didn't pay payroll taxes.
"We've had that issue with several communities," Ruby said, recalling a city employee who noticed his annual Social Security statement didn't include credit for months of work.
Eileen McSherry, regional communications director for the Social Security Administration said employees aren't punished for their boss's errors and can fix mistakes by calling their local Social Security office.
Read The Village, the ADN's blog about rural Alaska, at adn.com/thevillage. Twitter updates: twitter.com/adnvillage. Call Kyle Hopkins at 257-4334.
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