I-Team: Nevada Must Pay for Costly Tax Mistake - 8 News NOW

I-Team: Nevada Must Pay for Costly Tax Mistake

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LAS VEGAS -- A costly tax mistake will end up costing the state more than $1 million in back taxes. According to the IRS, Nevada has failed to file state employee tax forms correctly since 1986 and now the IRS wants its money.

Some state employees, including local judges, are getting emails from Carson City because the state messed up when filing their taxes. The employees owe as much as several thousand dollars each.

Nevada's Department of Administration learned the hard way it made a huge mistake on taxes going back to 1986. It handles state employee Medicare taxes. A state internal audit uncovered the mistake that had existed for 27 years.

The state blames misinterpreted legal advice it received nearly three decades ago. It affects 527 state employees, including judges, justices, and members of state boards and commissions. State officials and the IRS made a deal which calls for the state to pay back taxes for the past three years, and the rest will be forgiven. The total cost is $1.7 million. The state is making the full payment and the employees impacted will have three years to pay the state back.

"This is obviously not a place we're pleased to be at because we don't like to have mistakes and we certainly don't like to have mistakes for that many years," said Jeff Mohlenkamp, director of the state Department of Administration.

The majority of employees impacted owe less than $200. But an email obtained by the I-Team shows local judges may owe the state as much as several thousand dollars because of the state's mistake.

"We own the fact that we didn't make the proper deductions and proper remittances. For that, we're sorry. We're not happy that occurred," Mohlenkamp said.

But by settling with the IRS, the state and its employees avoid federal penalties. The state expects to dip into multiple funds, including the legislature's "contingency fund," to pay off the tax bill.

Assembly speaker Marilyn Kirkpatrick tells the I-Team it was difficult enough for Nevada to find more money for mental health emergencies and paying an old tax bill is going to be even more challenging.

The local district court released a statement Thursday. 

"The Medicare tax issue is unexpected. Each judge will have to determine the best way to address this issue for their circumstances."

The State Board of Examiners is expected to debate the proposed IRS settlement at their meeting next Tuesday.

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