Chronicle One- The CLSA taxes

[DWoolley]

Chapter One:

For those that want an assessment of the accuracy of the CLSA taxes in a word, to coin an old military acronym, TARFU. The question remains, what are the ramifications to the inaccuracies? I have no idea at this point.

For the wonkish folks that prefer elaborate explanations with the IRS references I will post Chapter Two later today.

Foreword:

I am confident millions of Americans complete their own taxes each year without the benefit of a Certified Public Accountant ("CPA"). Members of the public do not have to be attorneys to read, understand and execute legal documents, i.e. contracts. I would argue that most people have little trouble understanding and abiding by laws as they are written. The point being, you do not have to be a CPA or an attorney to have an understanding of accounting or the law (Mark Moore). If you choose to offer these services to the public, a license is required to practice. In reference to our profession, we each know surveying practitioners that practice negligently and others that are simply incompetent. The same must be true for every profession. Personally, I have fallen victim to incompetent and/or negligent professional services even after thoroughly researching the company/firm - it has happened to many of us. I firmly reject the notion that anyone of us are not capable of reading the laws and IRS regulations and instructions regarding the CLSA taxes and determining whether or not errors have occurred. Thank you to those that took the time to research the Tax Code, the Corporate Code and legal references for the benefit of forum readers (especially appreciated is Evan Page and Mike Hartley's researching and pointing out bad references to irrelevant case law and statutes i.e "loyalty" -which the BoD may have relied upon.

The Taxes:

In June 2013, Mike Pallamary ("Pallamary") obtained and reviewed the taxes filed for CLSA between 2004 and 2012. Upon his review, he questioned their accuracy. On a cursory inspection, Pallamary noted that the Officers listed seldom changed from year to year even though CLSA changes officers yearly. One year a "James West" was listed as an officer, nobody in knows a "James West" in CLSA unless they know Robert Conrad. In and of itself, this may not mean anything, but it is an indication that the CPA and the management company was not paying attention to the CLSA taxes.

Upon further review, it became clear that in tax year 2006-07 there was a gross misstatement of the year’s expenses. This error carried over to 2007-08 tax year when the error should have become quite apparent. It also became clear that in 2009, the IRS implemented a revised Form 990 and 990T for non-profit corporations. Pallamary's review further determined the CLSA forms were incorrectly completed. In 2009 the American Bar Association published an article stressing the importance of accurately completing the Form 990. The article recommended that even the seasoned CPAs seek out a tax attorney prior to the first year filing the forms.

The Executive Director and the Executive Committee:

Pallamary directed his tax inquiries to the CLSA Executive Committee and the Executive Director, acting as a concerned CLSA member. At this point, we do not have to assume Pallamary's inquiries were justified and well founded, this has been substantiated (more on that in a later post).

The course of action chosen by the Executive Committee was to write a report (attachment B) stating, among other things:

"The Executive Committee has confidence in the CLSA CPA."

I do not add this to make "CLSA look really bad" (Aaron). The OC Directors presumed the Executive Committee may have had a basis that wasn't made clear in their letter.

CLSA CPA James Ernst, also wrote a letter addressing the Pallamary concerns (attachment C) and admitting the taxes prepared were in error.

In reading the CLSA Report and the Ernst Letter, Pallamary was correct and is certainly not an enemy to CLSA. After all, he took the time to look at the material and ultimately, he was right in determining the taxes were in error. Being correct has to have some benefits. I can only hope the letter of gratitude from the President, on behalf of the members, is in the mail, together with his Life Time Membership award.

Although I have little doubt the Executive Committee's report to the BoD may have been well intentioned, initially-minus the attacks on Pallamary. I question their obligation to write a report. In other words, who asked them? Refer to the Organization Chart provided on my other posts. These incorrect taxes date back 10+ years- their review was not an emergency which required them to act on behalf of the Board of Directors.

Additionally, when a member, chapter and/or a Director questions something put before him as "fact", such as the confidence in an errant CPA and the CPA downplaying incorrect tax filing, he or she should not have to be subjected to ridicule. In other words, if the Executive Committee or the Executive Director "endorses" a report it is unreasonable to expect the Directors to negate our fiduciary duties. It is not a personal act against these folks that serve at the pleasure of the BoD. This is certainly not acting "disloyal", quite the contrary. Additionally, this is certainly not "abusing the Executive Committee and the Executive Director" (Aaron Smith). Again, check the organizational chart.

The Orange County Executive Committee and Directors:

The Orange County Directors, ever vigilant in our fiduciary duties, read the CLSA Executive Committee Report and the Ernst Letter (both attached as B and C) and wrote to the Executive Committee questioning their basis for confidence in the CLSA CPA (attached D). After our discussions, we realized none of us had ever seen the tax returns (as required with Form 990 pursuant to IRS regulations) during our tenure as Directors. Equally as important, when we realized the taxes had been prepared incorrectly for many years (on our watch). To be certain that Directors were never advised of these errors on the CLSA taxes, Orange County asked for the meeting minutes in which the Directors were advised that there were any problems. Collectively, we were not comfortable with the CLSA CPA, who had admitted the taxes were in error. We certainly did not think that Mr. Ernst should be the same person we should rely to give the professional opinion that there was no liability for these errors – after all he would be partially responsible for filing incorrect tax returns. Although I signed the letter, as President of the chapter, this letter was reviewed, edited and approved by the Orange County Executive Committee-together with all members in attendance at the meeting.

To avoid reader suspense-we have never received any minutes advising the Directors (us) of the tax issues-even for the egregious errors in the 2006-2008 returns. We never received any written response to the basis of the Executive Committee's "confidence" in the CLSA CPA. However, the Directors received a letter from James Ernst, CLSA CPA, addressed to Executive Director. This is quite curious in that we sent our letter to the President of CLSA and I am personally confused as to how Ernst was re-introduced to the conversation.

The CLSA CPA's Second Response Directed Toward OC's Questions:

(Attached as E). Res ipsa loquitur (Latin for "the thing itself speaks"). The CLSA CPA clearly and repeatedly admits to errors for each of the inquiries the OC Chapter raised. Instead of promising to amend the returns and apologizing, Mr. Ernst showed no hint of contrition-quite the opposite, he attacks me personally. He plays the semantics game-parsing our words and offering nothing substantial to the inquiry.

My (David Woolley) Response to the CLSA CPA-my Waterloo?:

(Attached as F). Res ipsa loquitur. My letter responding to Mr. Ernst-expressing my outrage at his comments- was paraded before the Board of Directors, after I had been instructed to leave the room. This letter serves as the primary cog in the current effort to expel me. Apparently, the CPA and the management company can file incorrect returns for the last 10 years and I am the bad Director for being outraged? I don't need to be thanked, it is my fiduciary duty as a volunteer Director to accept these responsibilities and not to readily accept "nothing to see here, move along". Instead of being thanked for uncovering this potential liability for CLSA by formal inquiry from the OC Directors (attachment 3), I have been publicly derided before the Board of Directors- in my absence.

As a Director I owe a debt of gratitude to Mike Pallamary for bringing this to our attention. I do not like that fact he was attacked for making his inquiries. It is not for me to judge his method of delivery-for me it is the message that matters and the message was clear "please check the taxes, I think there is a problem". He was right-end of story. Thank you Mike, I appreciate your contribution.

Again, I volunteered for this job. I have as many excuses as the next guy to not to do the job, but our chapter has put their faith in me and my fellow Directors. Until such time they ask me to "go along to get along" or direct me otherwise-I will continue to do the job.

CHAPTER TWO LATER TODAY.

[DWoolley]

Chapter Two:

As promised, for the wonkish and those concerned about the administration of the Association I have assembled a complete package with the reference material from the IRS (together with other references, examples etc.) and attached it hereto.

The intent is to offer this as a complete package in a print friendly format. There is duplication in the letters from Chapter One to facilitate easily printing in the future. Ideally, I would like to see a Director or a member presenting it to their Director ask that it be put on a future agenda for a Board of Director's meeting. Bottom line, the tax situation is not ideal. Hopefully, some Directors will step up and put some controls in place to insure this doesn't happen again.

Chapter Three, coming soon.

DWoolley

(The exhibits must to large to attach. I will break them down over the weekend.)

[BeachBum]

Just so everyone can have a frame of reference. I think everyone would like to see for themselves, CLSA's 2012 990.

I do the 990EZ for my daughter's school parent board, so thanks David ... for future reference, I will put the documents in their board agenda so that their BOD will be able to do their fiduciary duties.