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Was the Board's Decision to Withhold the IRS Audit Results an Example of Politically Motivated Election Fraud?

Let me set the stage for you.

First, here are the known facts:

1. The IRS audit of the association’s 2007 tax return was concluded in December.
2. President Jack Troia, Treasurer Dan Forgeron and a representative of SCACAI tax preparer Hilburn & Lein met with the IRS in December. The scope of that meeting was not disclosed.
3. President Troia said that the scheduled January meeting with IRS did not take place, but provided no details or reasons for that action.
4. The above facts were disclosed at the January board meeting, 27 January 2011.

Second, here are the unknown facts:

1. The secret results of the IRS tax audit.
2. Whether there are discussions or negotiations occurring with IRS on possible settlement options. While President Troia had the opportunity to say that such steps were taking place, there was no effort on his part to indicate that this possibility existed.

Third, here is the unanswered question: Why are those tax audit results being withheld from the members of the association?

In a nutshell, the board’s silence is tantamount to an admission that the audit disclosed serious adverse results, potentially involving the denial of millions of dollars in claimed deductions for 2007 and presumably also requiring the submission of adjusted returns for 2008 and 2009 tax years correcting similar issues.  

The following is intended to help answer the question of why the board is sitting on this news. On 14 December, 2010 two key members of the Board of Directors of Sun City Anthem Community Association met with the IRS auditor and were told that their audit of the 2007 tax return was concluded, along with the results of that audit. If there were any proposed changes to the return, IRS policy is to explain the reasons for the proposed changes. There is no reason to believe that that discussion did not take place at that time.

Based on President Jack Troia’s announcement of that event, it seems fair to assume that the changes proposed by the IRS auditor were not favorable. At the time when the audit results are disclosed, it’s the practice for the IRS to ask for a decision on whether one agrees or does not agree with the proposed changes. What happened next is unclear, although it is possible that a request was made for a written report of the auditor’s results. Such a request would not affect the outcome of the audit’s results.  

Since a subsequent meeting with IRS was scheduled in early January, the purpose of that meeting was likely twofold: 1) to provide a written report of the auditor’s results; and 2) to receive the association’s response to the proposed tax return changes. Understandably, the association has options available as outlined in IRS publication 556.

Between 14 December and the date of the scheduled January meeting with IRS, something must have happened. We know that because no meeting with the IRS took place, as announced by Jack Troia. We were led to believe that the reason for the failed meeting was a decision by the certain members of the board, although no specific reason was offered for that decision or how that decision came about.

Clearly, the importance of that failed January meeting with the IRS cannot be emphasized enough. One has to assume that it was important for the association to not attend that January meeting, but why? There must be a powerful reason at play when a corporation as substantial as Sun City Anthem decides to ignore what most would agree was intended to be a critical meeting with the IRS over the status of the audit. Was the association seeking more time and if so, for what purpose? What was that reason?

To understand why the board might have made that particular decision, assuming that decision was board directed, one has to take a look back at what was going at the time. It was December and preparations were already underway for elections to the board. After January 1st, prospective candidates could begin the registration process, and 18 February was the closing date just around the corner. This was a critical period for the community and the board has an keen interest in the outcome of the upcoming election since the term for four of the board members expired in 2011. Who wins and who loses has been of great interest ever since the board’s Unity supported coalition has assumed control of the election process. As most voting unit owners are aware, that process virtually guarantees Unity candidates a seat on the board. We have learned the bitter lesson of that coalition effort, namely that others need not run for the board.

There is nothing more important to this board than their ability to control the news. Sadly, this board has been one of the most confrontational, secretive and nonresponsive boards in Sun City’s history, largely due to its president, Jack Troia. In the case of any board candidate running for election or reelection, important news affecting the community has the potential of impacting the outcome of the election, especially if that news is bad and financially very costly. If only the board is successful in keeping a lid on any such unfavorable news, they may be able to control the outcome of the election. While some might regard that outcome as desirable, others will see such efforts as an example of politically-motivated election fraud.

What possible unfavorable news am I referring to? The decision of board not to meet with the IRS in January might be viewed by some as a possible contemptuous act, but without the facts surrounding that decision it's really too difficult to speculate. If no meeting occurred, there would be nothing to report at the monthly board meeting on its outcome, or so one theory goes. But that scenario does not adequately explain the failure of the board to disclose the results of the tax audit as conveyed by the IRS auditor at their December meeting. A possible excuse justifying the withholding of such information is that the board was then waiting to receive a written report from IRS simply does not hold water if we are to believe that one or more board members were privy to the outcome of the IRS audit. While members of the association have a right to learn the results of the audit, it seems the board has decided otherwise. Now, why would the board want to do that?

Absent any indication that the board and the IRS are in settlement negotiations, I can think of only one reason why the board would want to withhold such information from the community. The news about the results of the tax audit is not good and its disclosure will likely reflect unfavorably on current and past board decisions concerning the manner in which association taxes have been calculated. If the news were good, the board would be shouting that news from the rooftops. That did not happen.

Even allowing that the IRS news is bad, why should such news be withheld? Remember, we are talking about the results of the audit, not the board’s decision in response to those results, a very important distinction. The December news is not going to change now or later, or at any time in the future. The news about that audit’s results will always remain the same. What might change, however, is the ultimate outcome of the audit based on whether the board agrees or does not agree with the changes that were proposed and the results of any possible settlement negotiations on the amounts owed.

Interestingly, the board may have already decided to agree with the proposed changes, but are reluctant to convey that message to the IRS and to the community for fear of any adverse consequences to their fellow board members who could be running for reelection or to their favored candidates in the upcoming election. If only the board could delay and put off that disclosure, along with their agreement decision, until after the results of the election are known in May, all the better. In the event there is an appeal, the ultimate outcome may not be known for years.

What are the board’s short-term objectives by withholding the audit results? Those objectives serve only to enhance the so called Unity-supported candidates at the expense of all others, if any.  

1. To delay the results until after the closing date of the election registration process, February 18, 2011; that might help to deter interest in becoming a candidate in the absence of clearly defined issues; and
2. To delay the disclosure of the results until after the close of the election in May. That might help eliminate a potentially hot discussion topic that could easily adversely affect all homeowners, leaving Unity candidates with no ammunition to fight off a frontal attack in an effort to justify what had happened concerning association tax practices.

Can the board achieve those objectives? Yes. Will they be able to do so? That's yet to be determined.

Whatever the board decides to do, their decision to withhold such information can only be viewed as a politically corrupt act. The failure to disclose serves no legitimate purpose, only a self-serving politically-motivated purpose. Whether such a politically motivated act will rise to the level of interest of the one Federal agency that is charged with the responsibility of investigating possible election fraud is unknown.

In making their decisions on this matter, the board’s past reliance on the business judgment rule for needed relieve from possible liability may not be sufficient to protect them in what may become a politically charged environment.
 

Ron Johnson 31 January 2011, Rev.