Ernie Passailaigue, Arkansas Lottery Commission

In a letter sent yesterday to Lottery Commission Chairman Dianne Lamberth, Arkansas Lottery Director Ernie Passailaigue said the Internal Revenue Service “has assessed penalties and interest of $99,673.29 for the entire calendar year of 2010” due to late payments of taxes withheld from lottery winners.

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Passailaigue said the lottery’s CFO, Philip Miley, disclosed the matter to senior management yesterday. According to the letter, the “CFO considered this issue a routine accounting function and did not inform management of the issue until August 10, 2011.” Documents obtained by the Times show that Miley, who is set to retire in early September, received a letter from the IRS notifying the lottery of the penalty on April 11 of this year.

According to IRS documents (which you can see here), the lottery made 31 late tax payments in 2010, ranging from just one to 54 days late. Miley sent a letter to the lottery’s executive staff this morning explaining the problem. He said that “upon review of the schedule remitted with the IRS notice, the ALC finance staff noted several errors made by the IRS as to dates and amounts.” Passailaigue also maintains that the “IRS seems to have misunderstood when the deposits for calendar year 2010 were due.” A future meeting with the IRS should clarify the issue, he said.

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The IRS requires that withheld taxes in excess of $100,000 be deposited the next business day. A similar penalty was assessed in 2009, at a cost of $4,297.10. That penalty was waived after Miley sent a letter to the IRS explaining why late payments had been made (Miley assumed the lottery was to remit payments on a monthly schedule instead of a semi-weekly schedule). On April 27 of this year, Miley requested a waiver of the $98,637.29. That request was denied. Miley told the IRS, “Any penalties assessed for this situation will be a direct dollar for dollar reduction in scholarship funds.”

More on the jump, including the IRS’s response to Miley’s waiver request and a comment from Lottery Commissioner Steve Faris.

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