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Hospital says tax forms it filed showing bonuses to top executives were in error

STORY BY MEG LAUGHLIN (Week of September 11, 2014)

The Indian River Medical Center now says tax forms it filed with the IRS for the last two fiscal years, showing the hospital paid the taxes on more than $1.3 million dollars in supplemental retirement income withdrawn prematurely by CEO Jeff Susi and two others, are in error.

The hospital, which reported to the IRS that it had made so-called “gross-up” tax payments on the retirement funds withdrawn by Susi, former hospital Chief Operating Officer Cindy Vanek and Chief Nursing Officer Lynn Hubbard, last week denied making any such payments after it was asked about them by Vero Beach 32963.

The gross-up tax payments would have amounted to an additional bonus of more than $400,000 for Susi and over $65,000 for Vanek beyond their salaries, and attracted attention because the expenditures would have come during what was a difficult financial time for the hospital when more than 80 employees were laid off.

“But there was no gross-up,” said the hospital’s Vice President for Marketing, Lewis Clark. “The information in the 990 (IRS tax form) saying that the hospital paid the taxes is an error.”  He said amended forms would be sent to the IRS “as soon as possible.”

Tax forms filed in mid-August for fiscal year 2013 say that the three hospital executives took money out of their Supplemental Executive Retirement Plan (SERP) early and that the hospital had paid taxes for them.

According to the 49-page tax document for fiscal year 2013, the hospital paid taxes for Susi on $522,748 he took out of his SERP account early; taxes for Vanek on early withdrawal of $199,513; and taxes for Hubbard on early withdrawal of $60,180. 

The tax document for the previous year says that for fiscal 2012, the hospital paid taxes for Susi on $488,463; taxes for Vanek on $68,463; and taxes for Hubbard on $10,142. 

SERP payments – and sometimes even the additional gross-up tax payments – are often used as a retention tool for key executives, but curiously, in Vanek’s case, she received her 2013 supplemental benefit right around the time she was leaving the hospital anyway.

In the tax documents for both years, a box had been checked saying that the hospital paid taxes for executives. Then the tax payments are explained in detail in both documents: “The organization has provided a gross-up payment in order to cover the taxes on taxable income generated by SERP payouts.” The documents also said the payments were made in accordance with established board governance policies for the institution.

Clark now says the tax payments never happened, even though the hospital’s accounting firm, Crowe Horwath, and hospital CFO Greg Gardner apparently accepted the information in the 990 as factual when they signed the IRS forms, as did accountant Cindy Kushner and former CFO Dan Janicak who signed the 990 the year before.

Furthermore, the tax documents were made available to the hospital’s 17-person board in mid-August but no one – including Susi himself, who is also a board member – questioned if the taxes were paid by the hospital on the SERP withdrawals.  

To explain how the mistakes were made, Clark arranged a conference call for a Vero Beach 32963 reporter and editor with accountant Kushner of Crowe Horwath in Ft. Lauderdale.

“The misinformation occurred in the 990 because we were given incorrect information by someone at the hospital who gave us the supporting information to fill out the forms,” said Kushner.

“It was a misinterpretation by the client and the information is not correct. An individual – we couldn’t pinpoint who did it – confused something. We will amend the tax documents as soon as possible,” said Kushner.

Kushner called it a “common mistake” she often sees in her accounting practice – “confusion that it was a gross-up when it was not.”

“We all paid the taxes on the SERP money we received,” Susi told Vero Beach 32963 in a telephone call. “The hospital did not pay our taxes. I paid 40 percent of the $522,000 – or whatever the amount was – and I paid 40 percent the year before. The hospital did not pay any of our taxes.”

Chief nursing officer Lynn Hubbard, reached by phone Friday night, also said that “both years, I paid my taxes, which were there, in the SERP amount.” Vanek is no longer in the area and could not be reached for comment.

Why, then, did Susi – who had seen both “erroneous” tax documents with the gross-up amounts clearly stated – not ask for a correction?

“I looked at the statements over and over and I didn’t see it,” he said.