News Reedy Creek Improvement District and the Central Florida Tourism Oversight District

[Brian]

Payroll software includes fields for capturing this information. There are benefits specialists in both HR and payroll offices.

The fields are only populated by the aforementioned specialists if they know to enter the benefit in the first place. In other words, they can't enter it if they don't know it's taxable in the first place. Many companies find themselves with additional tax liability during audits because they failed to report/withhold for fringe benefits.

Again, I doubt RCID wasn't reporting taxable benefits in employees' gross wages.

Are you suggesting that the authors of this report would lie in an official report to the governor and the legislature? I'm no expert in this regard, but I wouldn't be surprised if that came with hefty civil, and possibly criminal penalties.

ETA: The report also states that the CFTOD will be in discussions with the IRS regarding paying the taxes for these benefits. I'm sure at some point a journalist will ask the IRS for comment; whether or not they give one is another story.

 

[LAKid53]

I have a Master's degree in Human Resources Management and a Bachelor's in Business Administration. What about you?

I say that visiting a park would be a violation of the FLSA if Classe's bogus argument that the complimentary admission was "employee training" was to be accepted as fact. In that case, training is considered compensable except in limited circumstances which likely would not apply to RCID employees.

In reality, he was merely attempting to dodge taxes.


It likely did capture the value, which is why district employees brought it to Classe's attention. He told them to consider it "employee training."

From page 9 of the report:


View attachment 757473

I have a BS in Finance, am a retired accountant, taken all tax law courses at our law school and have prepared quarterly financial statements and 990s...for 14 years. So pretty familiar with taxes and the IRC.

 

[tissandtully]

Are you suggesting that the authors of this report would lie in an official report to the governor and the legislature?

Yes.

 

[DCBaker]

Here is the letter an accounting firm sent to the IRS, which may shed more light on the issue.

https://www.oversightdistrict.org/wp-content/uploads/2023/12/Exhibit-56-November-28-2023-Tax-Letter.pdf

The CFTOD has posted links to all exhibits from the report on its website at this link.

 

[Brian]

Yes.

Interesting that you'd cut off the part of my post where I speculate that there would be hefty civil penalties and possibly even criminal penalties for doing so.

 

[peter11435]

This could potentially apply to a lot more than just the Reedy Creek Improvement District. It seems possible that it might also apply to other operating participants and maybe even Disney themselves.

Thinking about it, it might even be an issue for other park operators. It seems like lower wage theme park employees would notice being taxed for a few extra grand in income.

This part is going to be interesting to watch play out. Since Disney provides this same benefit to its own cast.

 

[Brian]

Here is the letter an accounting firm sent to the IRS, which may shed more light on the issue.

https://www.oversightdistrict.org/wp-content/uploads/2023/12/Exhibit-56-November-28-2023-Tax-Letter.pdf

The CFTOD has posted links to all exhibits from the report on its website at this link.

I'm sure someone around here will find a way to claim that the district is still lying, despite having their accounting firm send a letter to the IRS admitting they have unpaid tax liability and wishing to work with them to resolve it.

 

[tissandtully]

Interesting that you'd cut off the part of my post where I speculate that there would be hefty civil penalties and possibly even criminal penalties for doing so.

Ok man, not sure if that was a relevant part or if it needed to be included. Was just responding to your question you posed. I don't think past instances has given us any reason to think these folks are playing fairly or deserve any sort of good faith in their intentions.

 

[mmascari]

This could potentially apply to a lot more than just the Reedy Creek Improvement District. It seems possible that it might also apply to other operating participants and maybe even Disney themselves.

Thinking about it, it might even be an issue for other park operators. It seems like lower wage theme park employees would notice being taxed for a few extra grand in income.

If we assume it's a taxable item. It would likely be a larger issue for companies buying the discount passes than for the park operators themselves (including Disney).

If I buy an annual pass at retail price and give it to you as payment for work, that's effectively income a the retail pass price.

If I buy an annual pass at some discounted special pass price and give it to you as payment for work, that would be at the discounted price value. This could still be a good deal for you, as you may get more value out of the discount price costs and hence wind up ahead vs getting the discount price cash.

If I run a theme park, and can "buy" my own passes at whatever I say (and can justify) they cost me, I can charge way WAY less and then use that very low price as your extra income. At that price, you would likely get more value than the cash equivalent, a good deal for both sides.

Based on the number of Disney World employees that could possibly visit a theme park on any given day to utilize the pass, what percentage of total park guests for that day do they represent? What's the actual cost to service that extra guest load then? Even if we assume it's 0.5% additional guests in day, it probably doesn't change the cost to operate the park at all. Meaning, Disney World could probably set a cost of their direct employee passes at almost $0. It doesn't cost them virtually anything extra to give them to employees with the restrictions imposed.

So, it's an easier item for the company directly than for someone who has to buy, even at a discount. All the Disney partners who also use the discount could be impacted if this is how it turns out. If any of them already classify it as a taxable benefit, that would give some weight to the idea that it should be treated that way.

 

[peter11435]

I'm sure someone around here will find a way to claim that the district is still lying, despite having their accounting firm send a letter to the IRS admitting they have unpaid tax liability and wishing to work with them to resolve it.

I don’t think you can blame anyone for being skeptical. The current district administration and board have shown a repeated willingness to lie and mislead.

 

[Stripes]

One thing to note is that Exhibit 56 makes clear that RCID was in the process of rectifying the tax issue and contacted outside legal counsel even before the blow up with the state.

In exhibit 56, it makes clear that this was not a situation of “willful neglect” but rather “unintended oversight.”

 

[Brian]

I don’t think you can blame anyone for being skeptical. The current district administration and board have shown a repeated willingness to lie and mislead.

I wouldn't blame anyone if it were the board or the staff of the district who wrote this report, given their proclivity for embellishments and even willful misstatements. But that's not what happened. It was written by outside counsel, with major portions being written by experts in their fields. This is addressed starting on page five. While I'm not familiar enough with these matters to authoritatively say that the authors are unimpeachable, it would seem they have plenty of credibility.

Not only that, but when you consider that it is a report mandated by state law and addressed to the governor and the legislature, I'm fairly certain there would be hefty consequences for lying. Not to mention the damage to their professional reputation.

 

[castlecake2.0]

This part is going to be interesting to watch play out. Since Disney provides this same benefit to its own cast.

I swear to god if I have to start paying tax on my maingate because of all this, the governor is going to have 70,000 angry people

 

[flynnibus]

Again, I doubt RCID wasn't reporting taxable benefits in employees' gross wages.

Evidence to date would suggest they were not.

Both from the report details we have now... plus the obvious ignorance of every employee not knowing the value of those benefits.. which clearly they would have known if it was reported in their income... and at least some of the people would have wondered why their w-2 didn't match their actual gross pay.

 

[flynnibus]

I swear to god if I have to start paying tax on my maingate because of all this, the governor is going to have 70,000 angry people

There is also a difference between you as an employee... vs the district getting things as an outside party buying into a program.

 

[mmascari]

I swear to god if I have to start paying tax on my maingate because of all this, the governor is going to have 70,000 angry people

The cost to buy a retail price has one value.
The cost to the District to buy a discount pass and give it to someone has a different, lower value.
The cost to Disney to "buy" an internal discounted pass and give it to someone had a even lower value. Probably near $0.

It's a bigger issue for those not directly employed by Disney.

 

[Brian]

One thing to note is that Exhibit 56 makes clear that RCID was in the process of rectifying the tax issue and contacted outside legal counsel even before the blow up with the state.

In exhibit 56, it makes clear that this was not a situation of “willful neglect” but rather “unintended oversight.”

I think it's important to consider the audience of Exhibit 56, the letter from the accounting firm to the IRS. One is not going to explicitly blame their predecessors, because the IRS has no means of holding the old district accountable; only the district as it exists now. They need to cast this in the best possible light in the hopes of securing the assistance of the IRS.

From Exhibit 56 (emphasis added by me):

Ann Blakeslee retired in July 2021. Chris Quinn was promoted to CFO in October 2021. Subsequently, Chris raised the issue of taxability of the passes and discounts once again with the District Administrator, John Classe. Chris Quinn also consulted with outside legal counsel on the question of taxability of the passes and discounts. Outside legal counsel found no exceptions that could be reasonably relied upon to exclude the passes and discounts from wages. Thereafter, the CFO and the District Administrator discussed how to address this lack of reporting of taxable benefits. Options for remediation considered were reporting the fair market value of the benefit in wages or paying stipends equal to the cost of the passes and discounts. During this time, the District’s management was distracted by rumors which were circulating and culminated in the Florida Legislature’s action in April 2022 to dissolve the District effective June 30, 2023. The April 2022 law to dissolve the District was subsequently repealed by the Florida Legislature in February 2023 with provisions that amended the District’s charter to change its governance structure.

If this is the case, then why would the main report say that Classe told them to classify it as "employee training?" If both that claim and the bolded portion above are true, my assumption is that, having found no legitimate means to exempt the passes from taxable income, and given the "distractions" happening with the legislature/governor, Classe told them to make the issue disappear by any means necessary, so he can focus on things he deemed more pressing at the time.

 

[Stripes]

I think it's important to consider the audience of Exhibit 56, the letter from the accounting firm to the IRS. One is not going to explicitly blame their predecessors, because the IRS has no means of holding the old district accountable; only the district as it exists now. They need to cast this in the best possible light in the hopes of securing the assistance of the IRS.

From Exhibit 56 (emphasis added by me):

If this is the case, then why would the main report say that Classe told them to classify it as "employee training?" If both that claim and the bolded portion above are true, my assumption is that, having found no legitimate means to exempt the passes from taxable income, and given the "distractions" happening with the legislature/governor, Classe told them to make the issue disappear by any means necessary, so he can focus on things he deemed more pressing at the time.

This exhibit is from the company hired to investigate the tax issue. It is evident, based on their report, that the prior leadership at the district was aware of the issue and making steps to correct it including the idea of providing stipends to employees to cover the cost of the back taxes.

I do not view this as something damning.

 

[lazyboy97o]

I wouldn't blame anyone if it were the board or the staff of the district who wrote this report, given their proclivity for embellishments and even willful misstatements. But that's not what happened. It was written by outside counsel, with major portions being written by experts in their fields. This is addressed starting on page five. While I'm not familiar enough with these matters to authoritatively say that the authors are unimpeachable, it would seem they have plenty of credibility.

Not only that, but when you consider that it is a report mandated by state law and addressed to the governor and the legislature, I'm fairly certain there would be hefty consequences for lying. Not to mention the damage to their professional reputation.

There wasn’t exactly a robust solicitation process seeking a diversity of viewpoints.

A report on the prior structure and governance of the district was not required by state law.

 

[mmascari]

One thing to note is that Exhibit 56 makes clear that RCID was in the process of rectifying the tax issue and contacted outside legal counsel even before the blow up with the state.

For those wondering:

In late 2018, the District hired Christopher “Chris” Quinn as the Finance Manager, who subsequently became the Finance Director in 2020. In late 2019, Chris began investigating the potential for taxability of the passes with the then Comptroller/Deputy District Administrator, Ann Blakeslee. The District determined that the passes and discounts were working condition fringe benefits, excluded from income and not required to be reported.

Then later:

Ann Blakeslee retired in July 2021. Chris Quinn was promoted to CFO in October 2021.
Subsequently, Chris raised the issue of taxability of the passes and discounts once again
with the District Administrator, John Classe. Chris Quinn also consulted with outside legal
counsel on the question of taxability of the passes and discounts. Outside legal counsel
found no exceptions that could be reasonably relied upon to exclude the passes and
discounts from wages. Thereafter, the CFO and the District Administrator discussed how
to address this lack of reporting of taxable benefits. Options for remediation considered
were reporting the fair market value of the benefit in wages or paying stipends equal to
the cost of the passes and discounts. During this time, the District’s management was
distracted by rumors which were circulating and culminated in the Florida Legislature’s
action in April 2022 to dissolve the District effective June 30, 2023. The April 2022 law to
dissolve the District was subsequently repealed by the Florida Legislature in February
2023 with provisions that amended the District’s charter to change its governance
structure.

Searching for "train" or "training" in Exhibit 56 returns no hits. Searching for "training" in Exhibit 2-B doesn't show anything helpful.