Payroll Tax Issue Prompts Review of Financial Processes



A favorable resolution may be on the horizon in the district’s payroll tax issue.

Justin Riggi

While there was news on Friday that Dr. Thomas Hagerman would resign effective immediately, the matter of District errors in payment of payroll taxes remains. A favorable resolution now seems quite possible, but the outcome is not yet certain. 

At a School Board meeting on April 25, school board president Karen Ceske shared an update from the Scarsdale school district’s tax counsel regarding their discussions with the IRS. She said that the tax counsel reported that the IRS had posted the $843,558 payment for back taxes that the school board authorized. What remains outstanding from the district, Ceske reported, was approximately $460,000, mostly consisting of “failure to deposit” penalties. Ceske relayed the district tax counsel’s report that an IRS appeals officer was preparing a recommendation for “abatement” of the outstanding penalties. If the recommendation were approved, Ceske said, the outstanding penalty amount would be reduced to zero. Ceske said that the appeals officer reportedly told the district’s tax counsel that the officer’s manager would be reviewing the penalty abatement recommendation within 2-3 weeks. Ceske also said that if the recommendation were approved, the penalty amount would be reduced to zero within another 2-3 weeks. Thus, the IRS indicated that the school district’s outstanding penalty amount may be reduced to zero by around Memorial Day.

This optimistic report follows weeks of community angst regarding the Scarsdale School Board’s disclosure on March 30 that incorrect payroll tax filings occurred in 2020 and 2021, resulting in a potential total of $1.7 million owed, including assessed penalties and interest. The disclosure by the School Board at the March 30 meeting was connected to the $843,558 payment referred to above that the Administration requested that the School Board authorize.

It was revealed that the School District’s Administration, led by now-former Superintendent Dr. Thomas Hagerman, was aware of the issue at least since June 2021 when the IRS delivered a notice regarding the intention to impose a tax lien. It was also revealed that the Administration had been working to resolve the matter subsequently, with the assistance of the District’s tax attorneys. The Board, however, said that they were not informed until March 25.

Since that time, there have been efforts to correct the tax problems, and also to manage public concern about how these events unfolded. Complicating matters was that Dr. Hagerman had, before the tax issue came to light, announced his resignation at the end of the school year to pursue a new opportunity at The Latin School of Chicago. Additionally, Mr. Jeff Martin, the District’s Treasurer for over two decades, had announced his retirement before the tax issues surfaced in public.

Now, the picture has changed yet again with the agreement between Dr. Hagerman and the Board that he would resign immediately on Friday.

The hopeful report regarding the IRS’ handling of the matter is certainly welcome news for the district; this may allow the focus to shift to how errors like those that occurred can be prevented in the future. Additionally, the report may allow the focus to shift to improving communication between the district’s administration and the board to ensure the appropriate flow of timely information on critical financial issues. 

The board has already retained attorney Anthony Brock to conduct an investigation of what happened and is in the process of determining whether to hire an audit firm to conduct an internal audit of payroll tax processes and internal controls. Some believe that an internal audit is necessary. “An internal audit seems like the right next step to find ways to prevent these types of problems,” said Jo Lebale ‘25.

Some say that questions that will need to be answered include what additional oversight is needed to confirm payroll tax filings are correct and what escalation process should exist if financial errors are identified to guarantee there is full transparency between the administration and the school board.

Dr. Hagerman, Mr. Martin, and Ms. Ceske, the President of the Scarsdale School Board, were unavailable for comment, pending completion of the investigation.

Interestingly, the School District is not the only area in Scarsdale that has recently had payroll tax problems. On April 18, Scarsdale Village self-identified an error that occurred during eight weeks in early 2021, resulting in $41,000 in penalties and fees that the Village is working to resolve with the IRS. Village Manager, Rob Cole, announced that the village has engaged a financial consultancy to conduct an operational review of financial processes.