Grove City officials on Dec. 21 announced that they have learned the city owes the Internal Revenue Service $685,905 in withheld federal payroll taxes.

Grove City officials on Dec. 21 announced that they have learned the city owes the Internal Revenue Service $685,905 in withheld federal payroll taxes.

IRS officials visited the city Dec. 9, bringing with them 28 pages of documents that itemize unpaid amounts and filing errors from tax periods ranging from March 31, 2007, to June 30, 2010.

"This is the first time any of us were aware that there was this significant issue," said Mike Wasylik, director of public safety and deputy city administrator.

The city has paid the tax withholdings for the fourth quarter of 2010 and opened an investigation into the cause of the problem.

A press release from the city stated Mayor Richard "Ike" Stage directed city law director Stephen Smith Jr. and Wasylik to make certain the city is in complete compliance with all IRS policies.

Tax specialists from Smith's firm, Schottenstein, Zox & Dunn, are in discussions with the IRS to verify the city's obligation, Wasylik said.

"We're going to work with them to make sure we have all our payments up to date and then go back in time to see what reports were not filed and what back taxes we may owe," Wasylik said.

The city might decide to appeal the penalties and interest later, he said. Wasylik estimated that about half of the $685,905 is penalties and interest.

In addition, the city plans to hire an independent auditor to re-audit the city's payroll books.

The press release stated the auditor would examine the city finance department's policies and practices to determine how and why those filing errors were made.

"We're trying to determine what the (amount owed) is and where the mistakes were made because it's over a period of several years," Wasylik said.

After consulting with the Franklin County prosecutor's office Dec. 17, Grove City police began an investigation to determine if any criminal wrongdoing has occurred.

The press release said no problem with the city's federal payroll tax filings were identified in routine annual audits conducted by the state auditor's office or in a forensic audit completed in 2008.

Wasylik said the city is doing what it can to correct the problem and make sure it never happens again.

"I think the IRS is in a mode that they recognize we want to comply," he said. "We owe them money, and we're going to pay what we owe them."

The press release said, "The city will ensure all investigations and records are completely transparent and that the public is kept fully apprised of all results and actions as required by law."