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IRS files tax lien against state unemployment office

The IRS may be coming for the Maryland unemployment office’s offices.

The federal tax collection agency filed a legal claim called a tax lien last month against the unemployment office’s property.

The Internal Revenue Service claims that the Maryland Department of Labor, Licensing and Regulation’s Office of Unemployment Insurance owes the federal government about $850,000 in unpaid taxes, according to court records.

The tax lien was filed in order to encourage the debt to be paid — even though DLLR filed an appeal of its tax assessment in August and claims it does not owe the money the IRS has billed, said Dennis Morton, the unemployment office’s director of contributions.

“It appears to be a timing issue,” Morton said. “We fully expect to resolve this.”

Maryland’s unemployment office is not new to being improperly assessed by the federal tax collector, he said. Though the discrepancy has always been resolved before a tax lien was filed, he added.

In the past, DLLR’s appeals have been resolved in sit-down meetings with IRS auditors, Morton said.  This time, there was no word from the IRS on DLLR’s appeal until the lien was filed, he said.

The IRS is prevented by law from commenting on individual accounts and declined to speak with the Sun about DLLR’s appeal.

Because unemployment benefits are taxable income, DLLR offers it clients tax withholding — just as most employers do, Morton explained. The withheld taxes are routinely transferred to the IRS by “Electronic Federal Tax Deposit” payments, according to DLLR’s appeal and Morton.

But the setup of the department’s tax accounting system and the IRS’s electronic payment system can cause the payments to be registered as delinquent, Morton said.

“This has always been DLLR’s method of submitting EFTPS payments … since this service and method of payment was provided to our Agency by the U.S. Department of the Treasury,” Monica Douglass, the chief of accounting and fund management for the unemployment office, wrote in her August appeal to the IRS.

If there is a lag between when DLLR’s payment is submitted and when the IRS credits it, the tax payment is seen as delinquent “and assessed erroneous penalties and interest,” according to Douglass’ appeal letter.

All of those penalties and interest have accumulated, leaving the unemployment office facing a $846,279.87 bill.

And until it is paid or expunged, the IRS says it could have ownership rights to the unemployment office’s property — including its offices on North Eutaw Street. 

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