Aggressiveness--a Taxing Survey
QUESTION: My co-workers and I were having a discussion the other day about tax return preparers, and we’re hoping you can shed some light on our question. Are tax specialists at big public accounting firms more, or less, aggressive as a group, than independent tax practitioners who own their own firms or work for one of the tax preparation chains?--G.C.
ANSWER: It is, of course, impossible to say flat out that an entire class of tax practitioner is less aggressive than another. Even a single tax specialist may be very aggressive in advising one client and decidedly cautious when dealing with another. But, as with virtually any issue you could cite, someone has done a study and drawn some broad generalizations.
After surveying more than 100 members of Big Eight public accounting firms, smaller certified public accounting firms and independent tax practitioners, two university professors found that accountants working for Big Eight or smaller CPA firms are consistently more aggressive than non-CPA practitioners who own their own companies or work for such chains as H&R; Block. Size of the public accounting firm seemed to have no bearing on how aggressive the accountants were.
The professors had few explanations for the more aggressive behavior of CPA firms. They simply surmised that CPAs in general are more highly trained than other tax practitioners and so feel “more confident in taking and justifying aggressive positions.”
Rather than sit in on actual counseling sessions with clients or review actual returns, the professors devised a list of hypothetical tax situations and asked the accountants how they would advise clients. They also were asked how they would report the hypothetical tax cases on their own personal tax returns.
Through such queries, the professors--Frances K. Ayre, an assistant professor at the University of Oklahoma, and Betty Jackson, an assistant professor at the University of Colorado at Boulder--discovered that accountants don’t always follow their own advice.
Men with at least five years of experience as accountants--regardless of where they worked--were found to be more aggressive when advising clients than they were on their own tax returns. Women with that level of experience behaved just the reverse.
Q: I employed a housekeeper for years. At her request, I paid her in cash, so there were no deductions for Social Security tax. When she left recently to return to Mexico and I started looking for another housekeeper, I was told by an acquaintance that I should have been paying the Social Security tax all those years. Is that true? And is there a time limit covering how long the government can make me liable for all those back taxes?--C.A.F.
A: If you paid the housekeeper more than $50 in any quarter, yes, you were supposed to file a government form and pay the Social Security tax. The rule also applies to companions for the sick or elderly, babysitters, cooks, nannies and the like.
This is one case where there isn’t a statute of limitations. That means the IRS could catch up with you decades from now, although accountants say that isn’t likely to happen unless you or your housekeeper come to the government’s attention on some other, bigger matter.
For future reference, you are supposed to file IRS Form 942 for every quarter you pay out at least $50 cash to domestic workers. The form should be accompanied by a check in an amount equal to 14.3% of the wages you paid in that quarter. Half of that is your responsibility as employer. The other half you may deduct from the housekeeper’s wages or pay yourself. The bottom line is that you are the one who will be held responsible if the full amount isn’t paid.
