Why Kane County taxpayers owe $283,000 to IRS

The Internal Revenue Service is slapping local taxpayers with a $283,000 bill following an audit of how Kane County treated some employees.

The origination of the bill begins with Illinois Municipal Retirement Fund audits in 2011 and 2015. Pension system officials conducted the audits to make sure local governments, such as Kane County, made all necessary payments to cover beneficiaries. IMRF determined Kane County erred in classifying some employees as subcontractors. Government employees are eligible for pension benefits and subcontractors are not. Kane County did not make pension contributions for the subcontractors. Most of the employees in question were election workers. IMRF officials disagreed with the county's classification. They told county officials the IMRF would change the ruling if the IRS agreed the employees were, in fact, subcontractors.

County officials did attempt to attain that reclassification from the IRS, a move county board Chairman Chris Lauzen said was a mistake.

"The last people you ask for help with on your finances is the IRS," Lauzen said Wednesday. "Frankly, I think that it's an error in judgment to bring the IRS in where we have a limited exposure. It went from bad to worse."

Lauzen tried to resolve the situation by appealing to IMRF officials himself.

"I called up (IMRF Executive Director) Lou Kosiba, and said to him, 'This isn't the way that partners treat partners. You turn us over to the IRS? We can resolve this quietly without having to pay for errors made in the past.' "

But Lauzen said Kosiba told him it was too late now that the county had brought in the IRS to judge the situation.

The IRS, by that time, determined the county owed $325,000 in back taxes and fines. The county worked to reduce that bill to about $283,000.

County board members will vote next week on using cash from the county's insurance liability fund to pay the bill.