IRS joins list of those with questions for VisitDallas

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The Dallas Convention and Visitors Bureau failed to properly report its income to the IRS, resulting in an investigation and fines from the Internal Revenue Service in October, emails obtained by The Texas Monitor show.

Those emails, between bureau officials and the IRS, show that the bureau, also known as VisitDallas, failed to correctly report its employment tax contributions for two tax years and also improperly reported advertising revenue.

While the amounts involved are relatively small — the fines for the employment tax misstatements totaled $2,574 — the accounting problems show that the scope of the agency’s financial reporting failures may be more extensive than thus far publicly acknowledged.

In November, faced with an apparent steep increase in highly paid workers, VisitDallas claimed that it had misreported the number of employees receiving six-figure salaries on its tax forms going back to 2016.

According to its federal tax returns, the agency nearly doubled the number of employees making over $100,000 between 2016 and 2017 from 16 individuals to 30.

The new emails show that the agency is still trying to properly account for the $40 million it annually receives from Dallas’s hotel tax as payment for its promotion of the city.

The agency reported advertising revenue, through ads paid for with city-provided funds, as overall income yet the money “does not advance the [tax-]exempt purposes of the Bureau,” according to an IRS report. The income came from ads that VisitDallas sold on its website. 

“The commercial advertisement fails to contribute importantly to the exempt purposes of the bureau,” the report said.

While the board was not advised of any IRS action regarding VisitDallas, work is underway to correct past tax reporting deficiencies, Dallas officials said.

“Jill Larsen, our new CFO, has been trying to clarify the inconsistencies in the 990s,” said Dallas City Council member Jennifer Staubach Gates, who is one of two council appointees to the VisitDallas board. Form 990s are the tax return documents that nonprofit institutions file with the IRS.

Larsen, who promised in a press release announcing her hiring in July to operate the agency transparently, declined an interview request.

Former Chief Financial Officer Matthew Jones said he has not been contacted about any problems with past accounting and noted that the agency had gone through annual financial audits over the years with no problems and with no objections from the IRS.

Still, as with any exempt groups, he said, “there are normal periodic reviews, so it [the IRS report] doesn’t surprise me, especially with a bigger group.”

Jones added that the problems identified by the IRS are supposed to be caught by an institution’s own financial audits.

An IRS spokesman declined to comment on VisitDallas’ situation.

Aside from the routine financial audit done by the agency, a city audit of VisitDallas released in 2019 (covering 2016 and 2017) showed numerous problems with financial and performance numbers. Among the deficiencies was a failure to break out expenses for review and the lack of a policy that would allow board members to review the agency’s annual tax return.

The review also found that the city failed to adequately monitor VisitDallas. Several new oversight measures have been put in place in the wake of the audit.

The IRS contacted VisitDallas in May, advising the agency that it needed to make changes to its employment tax for tax periods ending in December of 2017 and 2018.

According to the IRS, VisitDallas was treating some employee benefits as not subject to income tax, when they should have been reported as taxable.

“In 2018 the tax law for not-for-profits changed the taxability of certain fringe benefits (employee parking/bus transportation),” VisitDallas spokeswoman Stephanie Faulk said in an email. “These were routine updates on our end and we wouldn’t necessarily know what triggered the IRS to reach out, but we feel it was likely prompted by the change in tax law.”

The IRS said that $25,747 worth of employee benefits were reported wrongly as not being subject to taxes.

VisitDallas in September received notice that it also could not claim revenue from commercial advertising as part of the agency’s operations. The documents — see them here —  do not specify if any penalty was involved in the advertising reporting.

On the ad revenue, “We classified it as non-taxable and the IRS determined it should be treated as taxable income,” Faulk said. The agency has corrected the years reported after the examined year, she said. 

The agency’s accounting firm performed routine audits over the last several years, but none flagged the tax reporting issue or caught the misreporting of the number of six-figure employees.

The city council voted in November to continue funding VisitDallas through the end of its current contract in September despite the fiscal and oversight problems cited by the city audit. However, the council reduced funding to the agency, electing to shift some money to other arts and tourism groups in the city.

VisitDallas in 2019 saw the departure of CEO Phillip Jones after The Texas Monitor reported that several VisitDallas trips coincided with his participation in nearby fitness contests. At the same time, chief financial officer Matt Jones was fired.

“There is no concern that this would prompt a deeper look from the IRS – these are routine examinations and we’ve made all requested updates,” spokeswoman Faulk said in a statement.

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