Elkin City Schools board hears that payroll taxes were not remitted; district faces large IRS penalty notice

Elkin City Schools board members were told at a finance briefing that federal payroll taxes and North Carolina withholding withheld from employee paychecks between August 2025 and March 2026 were deposited to district bank accounts but not remitted to the IRS or the North Carolina Department of Revenue.

Presenter (speaker 6) said the district has paid $13,005.35 in penalty and interest to the state agency and that the IRS has issued penalty-and-interest notices totaling $252,724.20 for the third and fourth quarters of 2025; the presenter said the district expects an additional IRS notice for first-quarter 2026. The presenter added that quarterly 941 payroll returns were not filed and that W‑2 wage reporting was late to the Social Security Administration, items that are likely to appear as audit findings.

Why it matters: the penalties and interest, if not reduced or waived, will reduce unrestricted fund balance available for operations and could require the board to reallocate funds or seek county support. Board members said the withheld payroll taxes were in district accounts but were not transmitted to taxing authorities for many months, and several members characterized the lapse as a failure of internal controls.

Board discussion and next steps: members discussed three immediate avenues: (1) have district staff contact the IRS to request relief and stop further penalty accrual where possible; (2) contact the IRS Taxpayer Advocate Service or Representative Virginia Fox’s office to request assistance; and (3) consult a tax attorney if initial outreach is unsuccessful. Presenters recommended contacting the district’s auditors and the IRS as soon as possible and said they would follow up with phone calls and written appeals. The board asked staff to report back within about a week on outreach results.

Budget and fund‑balance overview: presenters (speaker 5 and speaker 6) provided an unaudited review of this past fiscal year. Key unaudited figures reported included Fund 2 (current expense) budgeted at roughly $2.00 million with actuals very near budget and an unaudited surplus of about $25,009.25; Fund 8 (special/local grants) showed an unaudited revenue-over‑expense amount of roughly $289,000 but presenters cautioned some of that is restricted by grant terms. Capital outlay (Fund 4) reflects activity funded in part by prior-year balances, and presenters recommended appropriating fund balance for projects so auditors can see available capacity.

Discovery of accounts and reporting clarity: board members said they were surprised to learn about a 'local investment' money‑market account (audit balance roughly $547,000 as reported) and asked for clearer monthly reporting and a checklist to ensure routine payroll and remittance tasks are completed. Presenters and auditors told the board that the money‑market balance is included in audited fund balances but that some portion is restricted; presenters recommended a monthly financial checklist, closer CFO oversight, and improved communication with the board to avoid future surprises.

What the board directed: the board approved having staff (including the presenters) make immediate outreach to the IRS (and to the taxpayer advocate), to the district auditors, and—if needed—to a tax attorney. Presenters will also bring a budget resolution and recommended amendments to an upcoming board meeting (aimed for August) after state allotments are posted. The board scheduled its next regular meeting for Monday, July 27, 2026, at 6 p.m.

Numbers cited in this report are those given in the district briefing and described as unaudited or pending auditor confirmation; where presenters said the auditor will reclassify items, the article notes that final audited figures could change.