Last month, the IRS sent a letter of findings to the N.C. Department of Public Instruction (DPI), outlining possible mistakes in the way that state education officials classified certain types of compensation for the 2014 tax year.

Two of the determinations made by the IRS are trivial.  The federal government contends that the $15.00 per diem paid to members of the State Board of Education are wages subject to FICA.  Beginning next year, DPI will begin treating them as such.  In addition, there is a commuting rule that may apply to the relatively few state employees who are assigned a state-owned vehicle.

The third and most important determination concerned individuals who received contracts from DPI for certain services.  The IRS argues that a those who receive contracts from DPI for certain functions are not contractors, which is how DPI classifies them, but employees.  The IRS has demanded that DPI pony up nearly $250,000 for failing to withhold federal taxes from “employee” paychecks.

DPI officials dispute this determination and planned to discuss the issue with members of the State Board of Education during a conference call scheduled for this afternoon.  That call was cancelled this morning.

I have asked DPI to provide additional information about their dispute with the IRS.  Updates, corrections, and clarifications will be posted on this blog.