June 28, 2016

Intermittent clouds

District owes Stepp’s taxes?

Read the documents:
• Medina Schools Supertendent Randy Stepp’s 2009 contract, including retention bonus (Item 23)
• Stepp’s revised Nov. 7, 2011 contract, adding payment of past college loans and altering longevity incentive (Items 6 & 23)
• Stepp’s new contract, approved Jan. 7

Loren Genson and David Knox
Taxpayers may be on the hook for tens of thousands in back taxes owed on a quarter-million dollars worth of educational expenses paid over the last three years for Medina Schools Superintendent Randy Stepp, The Gazette has learned.

Since 2010, the school district has spent more than $265,000 for Stepp’s education, including nearly $172,000 to pay off his old college loans.

The school board agreed “to pay the costs associated with the superintendent’s acquisition of past academic degrees” in a Nov. 7, 2011, modification of Stepp’s 2009 contract. But a clause added to Stepp’s latest contract, approved by the school board Jan. 7, also obligates the district to pay “any tax liability that may result from such reimbursements.”

So far, the district has not paid Stepp for any taxes stemming from the payments of his educational expenses.

Randy Stepp

Asked Friday whether the district might have to pay taxes Stepp might owe, school board President Charles Freeman said, “That is what we’re looking into right now.”

He declined further comment.

But Stepp indicated that’s what the contract calls for.

“If the liability occurs, the contract has language to address that,” he said in an email response Wednesday to a Gazette reporter’s written questions.

But Stepp has not responded to a follow-up question asking whether he declared the payments for his education as income on his personal tax forms.

Jennifer J. Jenkins, a spokeswoman for the Internal Revenue Service’s Columbus office, declined to comment, citing federal disclosure law.

“I am not permitted to discuss with a third party any individual’s tax matter with the IRS,” she wrote in an email.

Medina County Auditor Michael E. Kovack said fringe benefits usually are taxable.

“In general, anything that an employer provides for an employee is a fringe benefit and that’s taxable.”

But it is not clear whether the school district’s payments of Stepp’s educational costs have been reported to the IRS.

In the past three years, Medina Schools paid more than $93,700 to Case Western Reserve University, where Stepp earned a master’s of business administration in 2010, to pay for his graduate courses. In addition, the district spent nearly $172,000 to pay off Stepp’s federal student loans for his other degrees. Stepp has a doctorate and bachelor’s and master’s degrees from Ashland University. But none of the payments for Stepp’s education appear on his federal W-2 tax forms, listing his annual income and tax payments, issued by Medina Schools.

Stepp and school officials gave conflicting explanations why that didn’t happen.

At the center of the confusion is the unusual way the school district paid Stepp’s educational bills and old debts: The payments didn’t come directly from the district — all the checks were issued by the Medina County Schools’ Educational Service Center.

Stepp directed the service center’s treasurer to cut the checks using money left over from district payments made to the center for supplemental and support programs. The center provides such services for all seven public school districts serving the county.

Stepp said the W-2s were the responsibility of the treasurer of the educational center.

“W-2s are handled by the treasurer’s office. In this case the ESC. Please ask them to address this question.”

But Treasurer Michelle McNeely said she never issued a W-2 for Stepp because he didn’t work for the service center. That was the responsibility of Stepp’s employer — Medina Schools, she said.

“We did not pay him directly, so we don’t need to file (a tax form),” McNeely said. “Medina should report it on his W-2.”

Medina Schools Treasurer Jim Hudson agreed with Stepp.

“The payment didn’t come from us, so we’re not required to file anything,” Hudson said.

He added that neither he nor McNeely were tax experts and that he wasn’t sure whether the payments for Stepp’s education should have been declared as taxable income.

“I don’t know if it’s accurate that it would have to be on a
W-2,” he said.

When asked whether he knew about the educational center payments to Case Western or to the U.S. Department of Education for Stepp’s loan, Hudson said, “No.”

Neither did the school board.

School board members acknowledged Friday that they did not know the total amount that had been spent for Stepp’s education until earlier this month.

Board members also said they weren’t sure whether Stepp’s new contract made them responsible for any taxes owed on those payments.

That tax bill could be substantial. If calculated at a top marginal rate of 25 percent, the tax on the total $265,000 would be about $66,000. If Stepp were in the higher 33 percent bracket, the tax could reach as much as $87,000.

Board member Susan Vlcek said the district is seeking legal advice on the issue.

“What we’re doing right now is getting legal opinions just to be sure where we are on all this,” she said. “We are trying to be sure we are clear before we make a statement on that. It’s certainly one of the areas that we are trying to clarify for ourselves and everybody else.”

Stepp’s taxpayer-paid education costs

In the past three years, Medina Schools has spent more than a quarter-million dollars for graduate courses taken by Superintendent Randy Stepp at Case Western Reserve University and to pay off Stepp’s federal student loans for his other degrees. Stepp has a doctorate and bachelor’s and master’s degrees from Ashland University and a master’s in business administration from Case.

$20,700 paid to Case Western Reserve University

$52,338 paid to Case Western Reserve University

$20,700 paid to Case Western Reserve University

$171,872.25 paid to the U.S. Department of Education to pay off Stepp’s college loans (a single check for $172,011.40, dated Jan. 9, 2012, minus a $139.15 refund)

Total: $265,609.85

SOURCE: Medina County Schools’ Educational Service Center

Contact reporter Loren Genson at (330) 721-4063 or lgenson@medina-gazette.com.
Contact reporter David Knox at (330) 721-4065 or dknox@medina-gazette.com.

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The Gazette is Medina County's daily local news source, serving the community since 1832. Contact The Gazette's news department at (330) 721-4065 or areanews@medina-gazette.com.