Payday should come in early February for more than 17,000 Gahanna residents who are part of a class-action lawsuit against the city of Gahanna and the Regional Income Tax Agency.
Attorney Todd Neuman said the lawsuit administrator’s accountant, Kurtzam Carson Consultants LLC., anticipates settlement checks will be distributed Jan. 31.
Neuman represented Gahanna residents Douglas and Karla LaBorde, who in a 2012 lawsuit said the city and RITA had improperly applied Gahanna City Tax Code Section 161.18 and in doing so failed to refund money rightfully owed to them based upon the full tax credit they were entitled to for income taxes paid to another municipality.
Gahanna City Council and RITA adopted legislation in May 2019 to agree to a settlement; however, subsequent disagreement about who would pay to issue the 1099 forms delayed distribution of the funds to residents, according to Frank J. Reed Jr., an attorney with Frost Brown Todd LLC, Gahanna’s lead counsel in the trial.
On July 11, 2019, the Franklin County Common Pleas Court held a hearing that approved the settlement.
The entry indicated the settlement class would receive $9.5 million: $9.1 million from Gahanna and $400,000 from RITA.
The entry required the payment be made within 14 days to the law firm of Allen Kuehnle Stovall & Neuman LLP.
On July 25, 2019, Gahanna wired $9.1 million to the law firm, the receipt of which was acknowledged in an email the same day, Reed said.
He said the plaintiffs’ attorneys were paid $4,275,000 and collected their money on July 25, 2019, and the lead plaintiffs, the LaBordes, were paid $100,000 and collected their money that day.
The rest of the money that was to be paid to class members has been sitting in the class administrator’s account, according to Reed.
He said KCC is charged with disbursing the funds.
“KCC has always had all the information they need to make the disbursements,” Reed said. “This is further illustrated by the fact that once Judge (Kimberly) Cocroft’s decision was issued on Jan. 9, ordering issuance of the checks, the very next day KCC issued an email indicating that they are now suddenly prepared to make disbursements by Jan. 31, 2020.”
Neuman said the settlement payments were not processed and sent out by KCC because Gahanna refused to agree to satisfy its obligation in sending out and reporting to the government the 1099 tax related forms/reports.
“Because of Gahanna’s refusal, KCC would not process the settlement payments and plaintiffs were forced to file a motion to require Gahanna to meet its obligations in this regard so the settlement payments could be sent out,” he said. “The court ruled in favor of the plaintiffs and ordered Gahanna to satisfy its 1099 tax related obligations.”
Reed said the Court’s Jan. 9 decision alters the prior settlement agreement.
“Gahanna is now obligated to send out the IRS Form 1099s,” he said. “These are documents that are sent to the IRS, stating that the plaintiffs received a certain amount of money in settlement of this case. These documents also are sent to the plaintiffs.”
Since the settlement entry dictated KCC make the cash disbursements, Reed said, Gahanna has no idea how much each individual plaintiff will receive until the disbursement is transmitted.
“Therefore, the city of Gahanna is unable to send a 1099 until the disbursements are actually made,” he said.
In addition, Reed said, pursuant to federal regulations, the 1099 form is to be filed by Jan. 31 in the year after the payments are made.
“Thus, under the applicable federal regulations, the 1099 forms are not due until Jan. 31, 2021,” Reed said. “The issue of who sends out the 1099 forms has never had any bearing on the ability to issue the actual checks and release the funds due to the class members.”
He said the issue has been who would pay to issue the 1099 forms.
Reed said the settlement entry said the costs associated with administration of the settlement fund would be paid from the fund itself.
“On Oct. 3, 2019, during a status call with the court, plaintiffs’ counsel indicated to the court that they would pay the cost of sending the 1099s,” Reed said. “However, on Nov. 18, 2019, the plaintiffs’ attorneys made it clear they no longer were willing to do so when they filed their motion.”
Reed said Gahanna accepts the duty to issue the 1099 forms.
The court’s decision on Jan. 9 said “there is a consistent and controlling admission in electronic communications and during the hearing on this matter – it is that, while Gahanna concedes it cannot handle the tax reporting requirements for the payments, it, nonetheless has a duty to prepare tax forms and to make a report to the IRS of payments distributed.”
The decision also said it’s noteworthy to highlight that Gahanna has never said it has no duty to handle the tax reporting but, rather that it “cannot handle the requirement based on limited personnel within Gahanna’s finance department.”
The decision “orders” Gahanna to issue 1099-G and/or 1099-INT tax forms to class-action lawsuit members, to comply with all reporting obligations in connection with the agreement and to cooperate with the class administrator and exchange all information necessary to ensure distribution of payments by no later than Jan. 31.
Reed said payments will be sent to the plaintiffs; the plaintiffs later will receive a 1099 stating the payment amounts they received; and the IRS will receive a duplicate copy of the 1099 form.
“Once the city of Gahanna made the decision to settle this case April 19, 2019, it was always and continues to be our hope and intent that the plaintiffs would receive their money as soon as possible,” he said.
Neuman said each affected resident could get “over a $100,000 or less than a $1,” depending on how much tax credit the resident was shorted.
He said payment will be pro-rated based on each class member’s damages, with many class members having gross damages under $100.