SS-8 Inquiry; Busting a CPA?

I wouldn't bother. It sounds like the CPA in question is functioning in the capacity of a director of the organization, and NOT as an independent provider of accounting services, and accordingly his State Board is unlikely to care.

But it will be interesting to see how the IRS responds to the SS-8.

MTW (a retired CPA)

yes. And, as it sounds like the school is in a different state than the CPA, to the state regulatory agency for the state where the school is located. Is the CPA practicing without a license in the school's state?

Did anybody get anything in writing from the CPA? I bet not, but that would be golden: The CPA said that the IRS raised an eyebrow when a worker who worked less than 10 hours a week was paid as an "employee" and not as an "independent contractor."

The CPA is a CPA! He cannot say "I am a CPA, and I am going to tell you how the IRS treats workers, but today I am not wearing my CPA hat."

Thank you MTW and "Taxed and Spent" for sharing your thoughts.

MTW, the CPA is licensed in NY. His license is active. The specific rule that I think he may have violated is Rules of the Board of Regents, Unprofessional Conduct Section 29.10 a. 5. I quote this at the end of this post.

The CPA signed the 2013 Form 990 (completed in Nov 2014) with his business's name. While serving as a director on the board in meetings, in an appeal to his authority, he has said he is a CPA. Several witnesses can attest to this. The CPA director also told teacher 2 above that the teacher would not owe sales tax to the state as an independent contractor. By way of trying to proving his claim by example, the CPA director said neither an attorney nor an accountant charges its clients sales tax. This is false in the state where we are. Reports on the net are that the state has come after independent contractors for sales tax. Attorneys and CPAs where I live build the sales tax into their fee structure of course. The sales tax is over 7%. If an independent contractor does not include sales tax in her or his fee structure, then they are out another 7% of their profits come tax season. Right now, I am waiting for the state to come after me for its sales tax. This is another reason I wanted to get the ball rolling and amend my own 2014 tax return.

The school has no one else advising them on payroll matters. I have in writing that the headmaster says he does not understand FICA taxes and that the CPA director (= the headmaster's relative who co-owns an expensive house in New York with the headmaster's mother) can answer questions about FICA taxes.

Stu in Jan 2014 posted here that a client of his submitted an SS-8 to the IRS in Sep 2012 and so far, had heard nothing. This is contrary to other reports on the net and concerns me. I know civil servants and the IRS are typically overwhelmed with work and may have to pick and choose which claims get addressed in what order. I have submitted an amended return for 2014 w/Form 8919 to help continue documenting this and force the school to pay its half of FICA taxes. But could this all be for nothing?

"Taxed and Spent," understood about reporting the CPA in both states. This makes sense.

I do want to know about whether and when to submit the Form 3949-A.

Thank you both again for offering your experience. It is a great community service.

====NYS Rules of the Board of Regents, Unprofessional Conduct

29.10 a. Unprofessional conduct in the practice of public accountancy shall include all conduct prohibited by Section 29.1 of this Part, except as provided in this section, and shall also include the following:

1. expressing an independent opinion or knowingly permitting his or her firm to express an opinion on financial statements of an enterprise, whether such enterprise is a for-profit or a not-for-profit enterprise, if the licensee or a partner or employee in the firm is not independent with respect to such enterprise. Independence will be considered to be impaired if the public accountant, or a partner in the firm, owns or is committed to acquire any direct or material indirect financial interest in the enterprise or had a direct or material indirect financial relationship with any officer, director, employee or principal stockholder of the enterprise. Independence will be considered to be impaired if the licensee, a partner in the firm or a member of his or her or the partner's immediate family, is or has been a director or officer of the enterprise, or is or has been involved in any situation creating a conflict of interest, during the period covered by the examination or at the time of issuance of a report;

If the school is an exempt organization, I think you should be filing Form

13909. Check it out.

But that's the thing. The CPA in this situation is NOT engaged in the "practice of public accounting." Rather, he is serving in a management capacity with respect to the organization. THAT conduct is not regulated nor prohibited by Boards of Accountancy.

An he is NOT "expressing an independent opinion or knowingly permitting his or her firm to express an opinion on financial statements of an enterprise..." So that provision (related generally to "independence" and conflicts of interest) simply doesn't apply.

The preparation of the organization's tax return MIGHT constitute an "act of public accounting." But "independence" (a lack of conflicts of interest, etc.) is NOT required for tax services, and Boards of Accountancy typically don't wade into this area (unless there are other more serious problems, like embezzlement).

Sorry. ;-)

MTW

You posted some legal questions and some accounting/accounting-ethics questions.

You may want to also post this on misc.legal or misc.legal.moderated to get some feedback on the legal questions.

My suggestion would be for the teachers in question, and also you if you believe that adverse actions were taken against you, to immediately consult with an experienced labor and employment attorney in the State where the nonprofit is located and where you and the teachers worked. If you could identify the State where the nonprofit is located and where all of you worked, that may help.

There are both State and Federal "whistleblower" laws. In general, they tend to focus on whether employees objected to or refused to participate in certain practices that they reasonably believed are in violation of laws or regulations or are against public policy, and were retaliated against for doing so. Many labor and employment attorneys will provide a free initial consultation on these types of matters. And, depending on the facts and circumstances, may take the case on a contingency fee basis -- meaning no cost to the teachers and you unless you win the case or obtain a settlement.

This should be done immediately because the statute of limitations for filing this type of claim can be short -- often 2 years or less.

As far as your issues about the CPA not being able to have multiple roles working within and for the nonprofit, I doubt that you would be found correct on that issue. And, since the CPA doesn't appear to have been doing an independent financial audit of any kind, I don't think that any so-called conflict of interest issues would be involved. My guess is that you would be wasting your time and energy trying to pursue that angle with regulatory agencies etc.

Personally, and just going by what you have written so far, I suspect that the CPA was just plain wrong with regard to State law (in whatever State the nonprofit is located and you all worked), and with IRS rules, when he and the nonprofit treated the workers as independent contractors instead of as employees. As I am sure you already know, there are a number of tests involved in determining who is an independent contractor and who is an employee. And, often, States are even more strict about that as it relates to workers compensation coverage etc. than the IRS -- depending on the State. Basically, it appears that the nonprofit provided the place of employment, specified who would be doing the work of teaching, specified when and where it would take place, directed how the work would be done, and probably provided the tools and equipment that the teachers used to do the work, etc. etc. All of that would point toward the teachers being employees and not independent contractors. One possible exception would may be if the teachers were actually part-time tutors who set their own hours, had a business of their own (even a sole proprietorship) as being tutors for this nonprofit and for others, etc. But, even then, the chances are that both the State and the IRS would conclude that these teachers were employees as they always had been in the past.

I would just like to add a few more thoughts in addition to what I previously wrote.

First, in all honesty and just for the purpose of trying to provide you with some honest and independent feedback, the way that you have been presenting this and wording your posts gives me the impression that you have a lot of personal animosity toward the CPA and a lot of strong emotional feelings about this matter. Even the subject heading -- "....Busting a CPA?" -- sounds more personal and emotional than rational, logical, and calm. Having strong personal and emotional feelings about this matter is certainly okay, but my suggestion would be to try to put those strong feelings aside and deal with the matter with less emotion and more with an eye toward trying to get the issue resolved amicably among all of the parties. My guess is that what you and at least some of the other teachers really want is simply to:

1) have the teachers re-classified back and treated as employees -- now and retroactively; 2) have any back FICA, workers compensation and other payments made by the nonprofit on behalf of all of the teachers involved; 3) have any teachers who were forced out or "constructively discharged" re-instated as employees in good standing; and, 4) recover any legal fees and costs that may have been incurred by you and the other teachers to get this matter resolved.

I would skip all of the vendetta and personal actions against the CPA. And, I would skip all of the reporting of so-called wrongdoing. And, I would definitely not file any Form 3949-A or Form 13909 or take any other action without first consulting with an experienced labor and employment attorney in the State were the nonprofit is located and where you and the other teachers work/worked.

And, again, it would probably help if you identified the Sate in which the nonprofit is located and the teachers worked since each State has its own laws and possible "wage and hour" boards etc.

Good luck.

RayP, thank you for sharing your thoughts. No one's a tutor. All are teachers with class times and a building where they report, and all materials provided by the school etc. If you google you will find case studies that attest to the reality that these faculty will be found to be "employees."

Please be aware that the amount of time it takes to prepare and file a Form 1040X and accompanying 8919 is significant. Then these teachers get to star on amending their state taxes. Furthermore they are looking at the state coming after them for sales tax, since they have been reported to be independent contractors. Finally the IRS and my state's tax department are going to have a truckload of paperwork to do. These jokers have cost the taxpayer and a small bus load of employees a lot of time and money.

There is indeed more to all this, and it is of a criminal fraud nature entirely separate from the tax issue. Capone was brought down by the IRS. This might be the case here as well. I cannot elaborate for obvious reasons. We are doing the best we can here without destroying our chances of employment in the future. I am not happy about this at all. As I noted, I gave notice I would not be seeking a contract renewal. I cannot be involved in this kind of impropriety and possible lawbreaking.

This is way too complicated to post at misc.legal.moderated, afaic, but thank you for the suggestion. I will take my chances without an attorney. I just want to report this and move on. Same with the other teachers.

MTW, thank you for the clarification. It helps a lot. And no need to apologize. I do not like wasting civil servants' time when there is nothing there as far as a violation of professional rules is concerned.

Taxed and spent, I am studying Form 13909 and considering it. Much obliged. :)

I agree, especially with that added information that you just included above. And, as it turns out, I know a whole, whole, whole lot more about this topic than I have alluded to so far -- including all of the employee status issues, all of the nonprofit issues, and all of the whistleblowing and retaliation issues. I am a little reluctant to post much more on a public forum, but believe me, I know a whole lot about all of this.

If what you really want is justice, and you want to clean their clocks, I cannot over emphasize how important I think it is that you at least do a free initial consultation with one or more experienced labor and employment attorneys in your area before you do anything else on your own. I truly believe that is how you all will be able to get the kind of justice that you want in all of the aspects of this matter, and how you will all be able to protect your own interests as well as your future employment options.

Good luck.

Last year I sent in an SS-8 for a client who had been misclassifed as an independent contractor. As far as I am aware, the IRS has done nothing - not even acknowledged receiving it.

Someone later told me that the SS-8 has to be sent along with another form (I forget the number) when the tax return is filed.

When a CPA, acting in his management capacity, does something he should know (as a CPA) is wrong, I believe the conduct is wrongful, and the CPA board should be able to punish him for that.

If he were to kill his wife, that's not in his capacity as a CPA either, but the AICPA can (and would) revoke his membership. They actually did that in 2009 for a member who was convicted of murder, for that reason alone.

If you can identify a violation of Circular 230, Regulations Governing Practice before the Internal Revenue Service, you can bump it up to the IRS Office of Professional Responsibility.

This sounds more like a question of "malpractice," or potentially "breach of fiduciary duty." Those are matters to be pursued in a court of law, not via a regulatory agency such as a Board of Accountancy. State Boards don't arbitrate malpractice cases.

Yes, if a CPA was found guilty of a serious crime, his Board of Accountancy might jerk his license. But the Board won't prosecute him for that crime beyond the narrow scope of its own rules. If one thinks a CPA has committed a crime, they should report him to appropriate law enforcement authorities...NOT his Board of Accountancy.

Note also that the AICPA is not a licensing authority. It is simply a trade organization. It can't revoke anyone's license. That authority is reserved to the 50 or so state Boards of Accountancy.

MTW

The above seems helpful. From the link above I found my way to 31 CFR 10.51(a)(7):

== Incompetence and disreputable conduct.

(a) Incompetence and disreputable conduct. Incompetence and disreputable conduct for which a practitioner may be sanctioned under §10.50 includes, but is not limited to--

(7) Willfully assisting, counseling, encouraging a client or prospective client in violating, or suggesting to a client or prospective client to violate, any Federal tax law, or knowingly counseling or suggesting to a client or prospective client an illegal plan to evade Federal taxes or payment thereof. == I see that an employer who issues 1099-MISCs to workers must use Form 1096 to transmit copies of any 1099 to the IRS. Form 1096 requires a signature. The school principal may have signed this, or the CPA-Board Director-Relative may have. I think this might be pretty compelling evidence for sanctioning under Section 10.50, or at least an investigation to raise consciousness.

Per "Taxed and Spent's" suggestion I looked at Form 13909. I studied this more. Sites at IRS.gov indicate it is the correct form to use and not to use Form 3949-A. I submitted Form 13909 largely because it is supposed to afford whistleblower protection. I grant I am not optimistic for obtaining same. I sent in Form 211 and immediately wrote the two other teachers who had revealed all this to me, saying in the event there was a 30% award for recovering taxes, I was splitting it three ways with them. It will not be much.

RayP, you have to be in our shoes to understand why we do not want to use an attorney. The other teachers have their reasons. At least one has had this suggested to her. We just want to move on but not look the other way while other teachers are capriciously fired (it's at least four in less than a year); successfully obtain unemployment; cost the state and school money; and so on. This is all no fun.

Stu -- I have not found mention of this other form that you say has to accompany SS-8. Hopefully Form 13909 will cover our bases here and not be viewed by the IRS as illegally redundant.

I think at this point I will let the matter percolate and move on to hopefully another teaching position. I am up for two though again, I may have stirred up a hornet's nest and be given a bad reference. I will document what I can, in the event, god forbid, this escalates further. On the third hand, fortunately this was a 'retirement job,' and I am not desperate for money. It helps though.

I will try to post an update. It may be three years from now.

Thank you Paultry, taxed and spent, MTW, Stu and RayP.

An organization with 501(c)(3) recognition is exempt from FUTA. I hope they haven't been paying that payroll tax.

Other people addressed the other issues raised.

Thank you for this important information. I see that 501(c)(3) organizations are exempt from FUTA but not exempted from state unemployment tax laws. I understand 501(c)(3)s have the option of either paying the state's unemployment tax or reimbursing the state 'dollar-for-dollar for benefits paid out if there is an unemployment claim.'

I don't think that is true in my state. If the nonprofit has employees, it must pay into the state's unemployment tax program as well as workers compensation.

I've filed two SS-8s (as a wrongly classified employee). In both cases it was many months before I received any sign that IRS had received the forms. The office that handles these is quite backlogged.

Both times I've submitted the SS-8 unaccompanied by any other form, so I don't know what the someone you mention is referring to.