SCHOOLDAYS, SCHOOLDAYS

Out here it never ends. A few weeks ago I wrote about a crew of Long Island lawyers who had gotten themselves state pensions by arranging to be listed as full time employees by school districts where their firms were on retainer. In other words, having begun as independent contractors advising the districts on their legal problems, they morphed into employees like the teachers and the principals, doing the same thing. They weren’t quite the same though, because several of them were carried as full-time employees not just in one district but in in two to eight separate districts. This was not true of any teachers or principals. Not being lawyers, they recognized the impossibility of being a full-time employee in two separate districts simultaneously.

Everyone wants a good lawyer when needed and a good lawyer is one who can do the impossible. These attorneys could; not only were they capable of bilocation but also of astral projection so two or even six jobs at once were duck soup to them. Based on a fifty-week year the multi-district designations meant that some of them got credit for 300 weeks of work in a single year. Naturally these supermen retired with pensions up to $100,000 yearly for the rest of their lives.

This was the objective of the employment fraud -- pensions. Pensions went to employees, not to consultants, or independent contractors, as these were. Becoming an employee was an achievement, but it did not mean that anyone had necessarily to give up the juicy pickings that went with being a consultant. So the school boards continued to pay out large fees to the law firms where their “employees” were partners. State law prohibited this kind of double-dipping, but the lawyers neglected to advise the school boards of this.

This was wearing two hats with a swagger. Employee one day, consultant the next day, but on the payroll every day. It was something like the old movie “The Captain’s Paradise” where the ferry captain had a different wife, and different life, at each end of his daily voyage.

What’s being done about all this? One trophy head has been collected from the thundering herd. A lawyer collecting from five school districts has been ordered by the state comptroller to pay back the $30,000 or so pension money he has collected since retiring in 2006. Another guy will be a tougher nut to crack. He retired in 2000 with a yearly tribute of $106,702 due him. Trying to get $700,000 back from him will be like trying to get fish from a man-eating shark. There are others due for the same treatment, who can also be expected to put up fanatical resistance.

The easiest to handle may be the three participants who have not started collecting the fat pensions yet and now can be headed off at the pass. Three suspects have been collecting long-term, meaning from 1979, 1996 and 2003 respectively and may have trouble disgorging. There will still be plenty of action for the investigators, which include the FBI, the state comptroller and the state attorney general, since the school boards have been told to produce their records of dealings with other professional type vendors, such as doctors, architects and accountants. Were they as ingenious as the lawyers?

One of the key points that will be raised against the school-lawyer cartel is the ignorance they’ve displayed of the IRS definition of an “employee.” When classifying the lawyers as employees the boards overlooked the requirements that they work in an office or work station provided by the employer, are provided with materials by the employer and submit time sheets for the work done. Possibly some of them may claim they worked from home communicating via the internet, but it may be difficult for them to prove this. This leaves both them and the boards liable to charges of falsifying official records.

I myself wonder about other troubles the faux-employees may have with IRS. When they attached five or six W-2s to their tax returns emanating from several employers, IRS had to assume that they were part-time workers because nobody could be full-time at all these jobs. What multiple W-2s meant to me when I was a tax preparer was that the customer had to be switching from one job to the other each day and was thereby entitled to a travel and transportation deduction for doing this. This could be a very useful deduction. I had a bad experience with it starting out in the business. Two black men walked into the office one day. They both had two W-2s from their jobs. They worked at one job daytimes and as cleaners in Grand Central at night. Since each employer withheld tax on them without regard to their other job, treating its payment to them as their total income for the year, they were underwithheld because the two withholdings did not add up to the amount of tax due on the total income from the two jobs together. In other words the tax on $15K in one job and $20K in another does not equal the tax due when the two amounts are added together to make $25K.

I felt for these men, who obviously deserved a break, but just couldn’t come up with a solution that would enable them to avoid paying out any more money than had already been extracted from them. Disappointed, they left. Disgusted, I remained. Then it came to me “Travel between two jobs! Of course! Why didn’t I think of it? What’s the matter with me? Where’d those guys go?” That I never found out. They were gone. I hope they found someone else who filled in the gap I hadn’t been able to. I never made the same mistake again. When I saw multiple W-2s I knew to ask about the travel involved in serving two masters.

That’s been a digression. But I always think of the tax angles in any employment cases that make the newspapers. I can’t help wondering if any of the faux employees in this one might have succumbed to the temptation to claim employee business expenses such as travel when they did their returns. Or did they put on their independent contractor hats and take the long list of deductions available to that taxpayer category, to the annoyance of the IRS? They could do both on one return, since they had both categories of income, but taking the employee deductions would be tricky, since the travel deductions alone would be impossible to prove, seeing that their employee status is impossible to prove. Aw, they’re lawyers, they’ll figure something out.






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