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Odyssey Dance Theatre, director owe nearly $700K in back taxes and penalties

By Julie Checkoway

Salt Lake Tribune (Utah)

December 15, 2008

Salt Lake County records show Odyssey Dance Theatre and its artistic director owe the IRS nearly $700,000 in back taxes and penalties, a reality that has not prevented county officials from awarding the well-regarded Utah company roughly the same amount in public arts funding over the past decade.

ODT made officials charged with disbursing funds through the county's Zoo, Arts and Parks (ZAP) program, aware of its debt, but repeatedly said the company was in negotiations with the IRS even though ODT attorney Charles Brown confirmed the dance company filed no formal offer to resolve the debt until Sept. 30.

ODT records also show the company failed to disclose its tax debts when applying for a $10,000 National Endowment for the Arts grant.

Both ZAP and the NEA have approved ODT for 2009 funding.

Actual disbursement of the funding, however, is contingent on a number of factors, including ODT's progress in negotiations with the IRS and whether that agency proceeds with further enforcement actions.

The company's predicament raises questions both about oversight of taxpayer money granted to the nonprofit and about ODT's ethical and legal responsibilities to those who support it.

Nonprofit status, which exempts organizations from most taxes, is a privilege that comes with responsibility, said Don Gomes, executive director of the Utah Nonprofits Association.

Nonpayment of payroll taxes is "blatant bad practice," Gomes said, and when one nonprofit "belittles the public trust," it can taint taxpayers' view of nonprofits as a whole.

A "no-brainer"

ODT artistic director Derryl Yeager, formerly of Ballet West, founded the company in 1993 to provide Utah with more eclectic dance offerings. By all accounts, that is what he did.

But Yeager conceded in an interview that at times his ambitions were greater than his ability to meet financial obligations. Between 1996 and 2006, "It was either pay dancers who had been in rehearsal for six weeks, or pay the IRS, who don't really care," he said.

It seemed like a "no-brainer," Yeager said, although he continued to hope a donor would come along and solve the problem.

ODT has employed as many as 24 full-time dancers whom ZAP applications show are paid from $300 to $600 a week. Because its dancers are full-time employees, ODT must remit payroll taxes.

That's where Yeager acknowledged he cut corners, an oversight the IRS considers serious, according to Salt Lake City tax attorney Bruce Olson.

Olson is not involved in the ODT case, but explained that, like other businesses, nonprofits are required to withhold a percentage from paychecks, match that percentage, and Odyssey Dance Theatre's production "Thriller" has become a popular fall favorite. (Odyssey Dance Theatre) submit the total to the IRS for Social Security benefits. Nonprofits also must pay state quarterly unemployment taxes.

The IRS is "supervigilant" about collecting the taxes, Olson said, because the government is ultimately liable to employees for these benefits.

Digging a hole

Between 1997 through 2008, ZAP applications show ODT used ZAP funds to subsidize its outreach programs and help pay operational costs. With ZAP's help, Odyssey continued to expand, frequently touring abroad and running a popular dance camp. But as it grew, it also dug itself more deeply into debt with the IRS. Penalties and interest, compounded daily, caused the debt to "add up fast," ODT attorney Brown said.

Third District Court records reveal that the Utah State Tax Commission and the Utah Department of Workforce Services separately filed 11 liens against ODT between 2004 and 2007 for delinquent unemployment insurance payments, which the state eventually collected.

And Salt Lake County records show that this year alone, the IRS filed a total of $692,390.94 in federal tax liens against ODT and Yeager. The most recent IRS tax lien against ODT was Dec. 1.

ZAP apps

Records show that ODT first revealed its IRS debt to ZAP in a 2002-2003 audit accompanying its funding application. ODT told ZAP it owed $270,378 in taxes, penalties and interest. In audits for the next two fiscal years, ODT told ZAP it owed a total of $339,617 and $372,416 respectively.

ZAP continued to fund ODT, perhaps because the program's mandate is to "help stabilize fledgling arts organizations," said Victoria Panella Bourns, ZAP program manager.

In 2005 application for 2006 funding, ODT first told ZAP it had "entered into negotiations with the IRS." Concurrently, while it owed some additional back taxes to the IRS, its penalties had ceased to accrue. What's more, in 2006 application for 2007 funding, ODT reported that its federal debt had actually decreased to $365,577.

That information, said Olson, could have indicated to the board that ODT was on the road to financial stability.

From 2004 through 2008, ZAP granted ODT $427,488.72 in funding.

Turning point

But ODT's application for 2009 funding set off alarms, because it indicated the tax debt had increased in one year by $300,000 in penalties, said David Gee, a new ZAP board member. "The numbers were now different and much higher," he said. Margaret Hunt, ZAP's current board chairwoman and Utah Arts Council executive director, said ODT had told ZAP three times that it was in negotiations with the IRS, but the new numbers suggested a continuing problem with the IRS. "We had been taking them at their word, and now we needed . . . evidence," she said.

ZAP invited ODT to a special board session to explain. The company sent its newly retained attorney Brown, who told the board ODT had never filed a formal offer with the IRS. He didn't know what had caused the delay, but he assured ZAP that now that he was on the job, that filing would indeed occur.

Brown inspired ZAP's confidence, said Gee, because he was known in the community as a "paragon of integrity."

Brown later also appeared before the Salt Lake County Council, which ultimately approves ZAP funding recommendations. Recorded minutes of that Aug. 5 meeting reveal the council had two concerns: It wanted assurances that no taxpayer money would go toward ODT's federal debt; and it wanted ODT to keep ZAP apprised of its progress in its IRS negotiations.

Councilman Joe Hatch said the IRS's eventual acceptance of ODT's offer "would go a long way toward satisfying everybody's concerns."

ZAP took additional action two days later. In a letter, Bourns specifically told ODT that "Salt Lake County may terminate the ZAP 2008 agreement . . . if an attachment or enforcement action is applied . . . by the IRS."

The IRS defines a lien as an enforcement action. Bourns said last week she was unaware the IRS had placed any liens on ODT either before or after she wrote her letter, but both she and Gee said the spirit of the warning to ODT had more to do with the onset of active collection practices, such as garnishment of wages or seizure of property, which had not occurred.

Formal offer

ODT has offered the IRS $170,361 to settle its debt. In an addendum to the offer Brown shared with ZAP, he wrote that he believed that amount was "clearly the best possible recovery the government could anticipate." He said that he arrived at the figure based on IRS guidelines and calculations. He added that $33,161 of the $170,000 would be paid personally by Yeager, in an attempt to shield past and present ODT board members from liability.

Tax attorney Olson said completing negotiations with the IRS could take from six months to five years. But Brown is confident the IRS and ODT will reach an agreement within 18 months from the offer filing date.

NEA glitch

The acclaim ODT has garnered is what motivated Yeager to apply for a 2009 NEA grant he thought would be another "feather in the cap" for the company.

But in applying for the $10,000 "Access to Artistic Excellence" grant, ODT failed to disclose its tax problems, despite the NEA's express requirement that it do so. The company left the financial disclosure section of the application blank.

NEA guidelines indicate failure to disclose could subject a grantee to penalties ranging from a grant delay to judicial enforcement.

ODT attorney Brown said the missing information resulted from human error. The application had been filled out online, and "somebody may have inadvertently left something off."

The NEA confirmed that ODT had recently been "in touch" about its federal debt. NEA spokeswoman Sally Gifford said that grant had not been disbursed but that the NEA is open to "acceptable and legitimate options that will enable Odyssey to complete its project," which the application describes as a 20-minute piece choreographed to the music of Stevie Wonder.

A final accounting

Brown said ODT's problems were the result of mistakes made by a man in over his head, an artist - not an arts administrator - who navigated the nonprofit world the best he could while focusing on making great art.

No one, "not even Derryl, denies that he did it," Brown said about ODT's failure to pay the feds. But "Derryl is Derryl," Brown said. "He's a dance guy, not a financial guy . . . He didn't know what he was doing."

The Nonprofit Association's Gomes isn't as forgiving. "All the artistic merit in the world . . . doesn't justify fiscal irresponsibility," he said. Tax attorney Olson added potential misleading statements in audits accompanying ZAP applications are "worthy of a closer look."

ODT board President Robert P. McComas believes ODT's financial position "has never been more stable." He said Yeager "deserves credit for the fact ODT is still operating" and that, after 14 years, the company is not only "viable" but "worthy of headlines."

"People love them," added ZAP's Bourns. "We just want to see them climb out of the situation they've gotten themselves into."

In fact, Odyssey has pressed on, continuing, in fact, to court funders. This holiday season, ODT is in performances of "It's a Wonderful Life," the story of one man's continual sacrifices and the eventual receipt of bounteous gifts.

Brown said no gift made to ODT, public or private, would go to pay down the IRS debt. Unless, he said, a donor came along who wanted specifically to do so.

ODT and ZAP

In its 2002-2003 audit submitted with its 2004 application for 2005 funding, ODT reports to ZAP $270,378 in back payroll taxes, penalties and interest

ZAP grants $86,068.05 to ODT for use in 2005.

In its 2003-2004 audit, ODT reports to ZAP $339,617 in back taxes, penalties and interest.

ZAP disburses $95,412.14 to ODT for use in 2006

In its 2004-2005 audit, ODT reports to ZAP $372,416 in back taxes, penalties and interest. It also reports that it owes $34,568 in state unemployment taxes. It reports that as of June 30, 2005, "the Organization is negotiating with the IRS for an offer in compromise for $236,354."

ZAP disburses $116,144.96 to ODT for use in 2007.

In its 2005-2006 audit, ODT reports to ZAP $365,577 in back taxes, penalties and interest. It also reports that it owes $38,248 in state taxes, but reports that as of June 30, 2006, "the Organization is negotiation with the the [sic] IRS for an offer in compromise in $236,354."

ZAP disburses $129,823.57 to ODT for use in 2008.

In its 2006-2007 audit -- and its application for 2009 funding -- ODT reports to ZAP that it owes $288,184 in payroll taxes and $398,844 in penalties and interest. It also reports that it owes $41,642 in state taxes. It reports that as of June 30, 2007, "the Organization is negotiating with the IRS for an offer in compromise for $246,543 in payroll taxes due.

On Aug. 5, 2008, the Salt Lake County Council, on ZAP's recommendation, approves ODT for funding in 2009.*

*ODT has estimated 2009 funding at $142,807, although a precise figure will not be known until 2008 sales taxes have been calculated.

Source: ODT audits, ZAP applications, and "ZAP Tier 1 and Zoological Funding History."

About Odyssey

Derryl Yeager founded ODT in 1993 as Utah Contemporary Dance Theatre. Now in its 15th season, the company is made up of 24 full-time dancers and presents an eclectic mix of dance styles and traditions from ballet to jazz to modern and hip-hop.

The dance company has earned national and international attention, with The New York Times describing some of the company's choreography as "ingenious." And this past year, Odyssey was one of two American dance companies selected to perform in an event coinciding with the Bejing Olympics.

Odyssey's Utah productions are well-attended, and "Thriller," one of its annual programs, is a local favorite.

About Derryl Yeager

A Utah native, Yeager has bachelor's and master's degrees in dance from the University of Utah. He spent six years as a principal dancer for Ballet West and has appeared in films, including 1983's "Staying Alive," and on television's "Fame." Yeager also had a role in the international touring production of "A Chorus Line."