LITTLE ROCK — Arkansas’ lottery plans to pay about $100,000 to the Internal Revenue Service soon for interest and penalties that the IRS imposed on the lottery for being late in paying federal taxes on prizes, but also plans to file an appeal with the IRS next week, an attorney for the lottery said Thursday.
Bishop Woosley, chief legal counsel for the lottery, said the lottery intends to pay $100,757.75 to the IRS on the basis of the advice of attorney Carrold Ray of Little Rock in hopes of avoiding more interest and penalties that could continue to accumulate as long as the obligation remains unpaid.
Two months ago, the lottery hired Ray at no charge tohelp it appeal the IRS’ assessment of more than $98,000 in penalties.
Ray said paying the penalties and interest “is not an admission that the penalty is owed.”
It makes sense to pay it “to avoid the risk of interest or penalty on the penalty itself,” he said.
Paying at this point is “fairly standard procedure.There is nothing unusual here,” he said.
In mid-August, then-lottery Director Ernie Passailaigue told the state Lottery Commission that he had just learned from departing chief fiscal officer Philip Miley that the lottery had been assessed $99,673.29 in penalties and interest, as of Aug. 2, for the late payment of 2010 taxes.
He also said the IRS had waived about $4,300 in penalties for a similar problem in 2009.
The IRS may waive the $98,446 penalty but not the interest, Passailaigue said at the time.
Woosley said Thursday that the $100,757.75 that the lottery intends to pay includes both the penalties and the interest.
The $100,000 equals about 22 of the $4,500 lottery-financed scholarships to fouryear universities or about 44 $2,250 scholarships to twoyear colleges.
Passailaigue told the commission that Miley, whose resignation as chief fiscal officer became effective Sept. 9, considered the IRS action “a routine accounting issue.”
Miley subsequently defended to lawmakers his decision to wait until mid-August to notify Passailaigue about the IRS penalty. He testified that he was “convinced that the lottery is not in error,” and that “once the facts are known, I think the lottery and the public will see that there really weren’t any errors that occurred.”
Passailaigue, who was hired in June 2009 from the South Carolina lottery to guide the development of Arkansas’ lottery, submitted his resignation as the lottery’s director on Sept. 19. His resignation became effective Oct. 3. He has said he wanted toretire at age 64, but he also declined to rule out the possibility of going back to work in another job.
The lottery’s two vice presidents, who were hired by Passailaigue from the South Carolina lottery in July 2009, departed the lottery within a few weeks of Passailaigue submitting his resignation. Vice President of Gaming Operations David Barden resigned effective Sept. 30. Vice President of Administration Ernestine Middleton was terminated by interim Director Julie Baldridge on Oct. 5.
In firing Middleton, Baldridge cited a state audit of the lottery last November and the IRS assessment of the $98,000 in penalties, according to lottery documents.
Passailaigue was paid $326,832 a year, Barden and Middleton were each paid $225,655 a year. Baldridge’s salary is $107,100 a year.
Dianne Lamberth of Batesville, chairman of the commission, said Thursday that during its Nov. 21 meeting, she expects the commission to consider a job description for the lottery’s permanent director position and the process for searching for someone to fill the position. Several commissioners, including Lamberth, have said they aren’t in a rush to fill the job.
Lamberth said she attended the annual conference of the North American Association of State and Provincial Lotteries from Monday-Wednesday in Indianapolis, along with Baldridge.
“This was strictly education for us,” she said, adding that she wasn’t scouting around at the conference for a permanent director.
The lottery started selling tickets on Sept. 28, 2009. So far, it has raised more than $200 million for college scholarships.
More than 30,000 students received lottery-financed scholarships during the past school year. For this first class of scholarship recipients, the scholarships are $5,000 a year for students to attend fouryear universities and $2,500 a year for those to attend twoyear colleges.
Students, who in this school year receive the scholarships for the first time, will receive $4,500 a year to attend four-year universities and $2,250 a year to attend two-year colleges. The state Department of Higher Education is expected to release figures today about scholarship recipients in this school year, according to a spokesman for the department.
In November 2008, nearly 63 percent of voters approved Amendment 87 to the Arkansas Constitution to authorize the General Assembly to create lotteries to pay for scholarships for Arkansans to attend colleges and universities in the state. Then-Lt. Gov. Bill Halter, a Democrat from North Little Rock, led the campaign to persuade voters to approve that ballot measure.
The 2009 General Assembly approved legislation authorizing the setting up of the lottery.
Front Section, Pages 1 on 10/28/2011