“Nothing is certain except death and taxes,” said Philadephia’s favorite son, Benjamin Franklin, and the City of Chester just got a reminder that he was right.
The Internal Revenue Service submitted proof of claim this week in U.S. Bankruptcy Court in the Eastern District of Pennsylvania, demanding a whopping $859,975.36 from the financially strapped city.
According to the filing, the IRS is listed as a creditor, and Chester owes Federal Insurance Contributions withholdings for the tax period ending December 31, 2021. The original unpaid balance was $132,844.55. With interest and fees, it tallies up to nearly $860,000.
Why the money was never paid was a mystery. City Councilman William Morgan oversaw Chester’s finances at the time. A judge removed Morgan from the position earlier this year at the request of City Receiver Michael Doweary. Morgan had previously lost $400,000 in city funds in a phishing scheme.
The tax problems were not a surprise to the Receiver. Doweary mentioned approximately $750,000 in IRS penalties in a March 2022 status report.
“The Receiver suspects that some City officials have either explicitly directed staff not to communicate directly with the Receiver’s team or have strongly discouraged them from doing so,” Doweary wrote. “The Receiver believes that some City staff are thus placed in a very difficult position where they know that they should fully cooperate with the Receiver’s team but are afraid to do so for fear of upsetting elected officials.”
Doweary also wrote about Chester’s IRS debt last November in his Modification of Amended Recovery Plan. It was mentioned in a section that also criticized the City for being late on financial audits, not having a department budget process, and a backlog of unpaid bills. Chester lacked basic financial reports, as well.
Court documents show the onus was on Morgan for the IRS issue. Doweary said Morgan made either “late or inaccurate payments” to the IRS. He used the debacle as an example of why the city needed accurate financial reporting.
The IRS tax issue is the latest financial shellacking for Chester this year.
A Retiree Committee demanded payment of a nearly $520,000 bill from the city earlier this year after hiring two high-profile law firms as representatives. Doweary passed the bill to outgoing Mayor Thaddeus Kirkland, claiming the city is “legally required” to pay the money. Kirkland, who has never had a good relationship with Doweary, felt otherwise and vowed never to pay anything. The Retiree Committee, meanwhile, accused Doweary and the DCED of blowing off an idea to have Pennsylvania’s government pay the legal bills.
Chester has been in Pennsylvania’s Act 47 Financial Recovery Program since 1995. The law lets the commonwealth’s Department of Community and Economic Development (DCED) monitor Chester’s books, put together a recovery plan, and offer financial aid that must be repaid.
Former Gov. Tom Wolf appointed Doweary to the Receiver position three years ago. Doweary put Chester into Chapter 9 bankruptcy last November. He has said the City may be dissolved due to its disastrous financial state. The Receiver has previously warned Chester needs a plan by the end of this year, or else it will cease as a municipality. He and DCED have asked a court for another two years as Receiver.
Doweary’s chief of staff previously told DVJournal Chester needs a $5 million loan in January to make its payroll.
A call to Morgan’s City extension was forwarded to another council member’s extension. A call to Doweary’s office was not returned.
