IRS fines Scarsdale schools $1.7 million as superintendent waits 10 months to tell board

The Scarsdale schools, renowned for their educational excellence and high employee pay, now have a new claim to fame: $1.7 million in penalties and interest levied against the district by the IRS.

The tax issue involves errors made by Scarsdale’s finance office when it filed the district’s payroll tax payments throughout 2020 and into 2021. Scarsdale has sought an abatement of the penalties, but the IRS has yet to grant them.

To make matters worse, Scarsdale Superintendent of Schools Thomas Hagerman, the state’s second-highest-paid public school administrator at $476,000 annually, failed to inform the Scarsdale school board of the IRS fines and penalties for close to a year. He did so as he undertook “exhaustive efforts over the past several months” to negotiate with the federal tax agency, according to a school board resolution.

In June 2021, the IRS notified the district it would be fined. The IRS filed a $1.3 million federal tax lien against the district in October. The school board wasn’t told of the financial problems until late March, 10 months after the IRS notified the district that fines would be levied, according to board President Karen Ceske.

Hagerman announced his resignation in late January, saying he would serve out the remainder of the school year to July. That same day, district Treasurer Jeff Martin also announced his retirement. It is not known if Martin also knew about the IRS fines when Hagerman knew of them.

A day after his resignation, the Latin School announced Hagerman’s appointment to a job for which his predecessor was paid $750,000, according to the school’s IRS filing.

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Hagerman and the Scarsdale Board of Education have been unwilling to discuss the issue with taxpayers or the press. At two recent school board meetings, Board President Ceske read prepared statements, citing advice from district lawyers. Neither Hagerman nor Ceske responded to statements made by residents at its meeting Monday night.

Ceske was not aware of the IRS problem until March 25.

Hagerman’s contract calls on the superintendent to keep the school board advised of “all matters concerning the administration of the district that should be reasonably brought to the attention of the board, including, but not limited to employee discipline, labor relations and finances.”

Scarsdale resident Robert Berg said he was stunned that the board was not informed about the IRS troubles for 10 months while Hagerman and the district tax attorneys carried on negotiations with the IRS.

“There seems to be a major cover-up going on here,” Berg told the school board Monday night.

State Assemblymember Amy Paulin, D-Scarsdale, a longtime village resident whose children attended the Scarsdale schools, said she was shocked Hagerman had kept the school board in the dark over the federal fines and penalties.

“That’s unheard of, and unconscionable,” said Paulin in an interview. “I wasn’t surprised he was leaving, but this is beyond the pale.”

Longtime resident Bob Harrison, a former village of Scarsdale trustee, said that it was time for Hagerman to leave — either through resignation or be fired.

“Some heads should roll,” said Harrison.

Parent Mayra Kirkendall-Rodriguez said she was troubled by the lack of financial oversight by the Board of Education. When she sent an email to Hagerman and school board members about the payroll issues, she was surprised when Hagerman responded, saying he was answering for both the administration and the school board.

She said that Hagerman told her she was out of luck getting answers to her questions because matters of "potential or current litigation" in the Scarsdale schools are discussed neither with the public nor in public meetings.

Kirkendall-Rodriguez wasn't happy with Hagerman's response.

"The board and the administration are not the same body," she said. "The board is supposed to be independent and its role is to provide oversight."

Board of Education spokeswoman Michelle Verna last week told Tax Watch that any questions for the school board or Hagerman be made in writing. Tax Watch submitted several questions, but Verna said Monday the district would not answer them.

Instead, she said school board president Karen Ceske would make a statement Monday night. That's when she provided more details on the botched payroll payments. But the district did not answer questions about its auditors, tax attorneys, and the lack of communications between Hagerman and the school board.

What went wrong

The troubles began in early 2020 when a district employee paid the district’s payroll taxes, but entered the information incorrectly into the IRS system, Ceske said. That caused the first-quarter payments to be tardy.

Then a third-quarter payment was applied to the second quarter, resulting in additional IRS action for failure to file for the proper quarter.

The IRS then collected the fines totaling $861,320 from the ill-submitted payroll taxes from Scarsdale, Ceske said. The district has appealed that fine and the remaining fines and interest of close to $900,000.

“We do ask that the community understand that this is presently a matter requiring consultation with and advice from legal counsel, and therefore the board is limited to what it can disclose,” said Ceske. “The board is committed to transparency, and we will update the community as we are able.”

Hagerman, who has served as Scarsdale superintendent since 2014, came east after serving as schools chief in Winnetka and River Forest, Illinois, and in Portland, Oregon. He was in the second year of a five-year contract in Scarsdale that was extended by a year in 2021.

The school district gave Hagerman a second five-year contract in 2019. That contract included an annual payment estimated at $17,000 in tax-deferred compensation plus $500 a month for car expenses.

That action to extend the contract came in a controversial vote on June 21, 2021, at the school year’s final meeting, during the school board’s lame-duck session before a newly elected board was installed. The action came in the same month that the district was notified by the IRS of its intent to levy penalties.

District spokeswoman Verna declined to say what day in June the IRS notice was issued.

Hagerman won a 2.75% raise plus a bonus check for $5,000, which brought his total compensation package to $476,217, second only to Harrison Superintendent of School Lou Wool, whose package was $499,349 in the 2021-22 school year, according to the New York Education Department database.

At that meeting, there was an uproar from Scarsdale parents who objected to the contract extension, which had been revealed just hours before the vote, according to reports in the Scarsdale Inquirer, a local weekly newspaper. They noted that voters had ousted the board’s sitting vice-president, and spoke of the growing mistrust between the community and the school board.

Hagerman will return to Illinois to the Latin School in Chicago, to enter the high-priced world of prep school administration. He’ll succeed Randall Dunn, who earned $750,000 in 2020, according to the school's 990 IRS report.

Dunn, meanwhile, is leaving Chicago to become head of school at Rye Country Day School in Westchester County, whose predecessor earned $1.2 million in 2020.

Follow Tax Watch columnist David McKay Wilson on Facebook or Twitter @davidmckay415. He has written about Hudson Valley public affairs since 1986. Check out his latest columns at lohud.com 

This article originally appeared on Rockland/Westchester Journal News: Scarsdale fined $1.7 million by IRS while school board left in dark