Paul Coates

March 18, 1958

Yesterday I told about a man sent out by this office to visit a few of the hundreds of persons in Southern California who represent themselves as "income tax experts."

We gave him the name of Victor Romano. Occupation, insurance salesman. Wife, Mary. Her occupation: beauty operator.

Romano left my office armed with a set of facts and figures pertaining to his family's 1957 earnings and expenses plus some mock W-2 forms to support them.

He visited many "experts" --finally settling on four to fill out his 1040 form and determine the government's bite on the $7,635.25 combined income of himself and his wife.

Two of the tax "specialists" he picked at random. The third was an official accountant for the Internal Revenue Service. And the fourth was a member of a recognized accounting firm.

The results: No. 1 stated that--in addition to the $874.40 income withheld--he owed Uncle Sam $98.07. No. 2 said he deserved a refund of $101.93. The Internal Revenue Department figured his refund at $112.69, while the recognized accounting firm came up with a refund of $302.66.

The discrepancy of more than $400 was pretty frightening. It was $400 in or out of taxpayer Romano's pocket.

But the figure wasn't half so frightening as some of the miscalculations and omissions by Experts No. 1 and No. 2.

It's pretty obvious that neither knew what he was doing. Both made mathematical errors. Both cheated Romano out of money. And yet both made him liable for cheating the government.

The mythical Mr. Romano's wife earned $2,400 working in a beauty salon. Yet both Experts No. 1 and No. 2 ignored the fact that beauty operators receive tips for their work.

Therefore, the Romanos' tax form would never have been approved by a government auditor.

Other errors which might have been caught included:

1--An illegal $400 deduction, claimed because Mrs. Romano bought some beauty parlor equipment which Expert No. 2 labeled as a "loss" when she abandoned her small home beauty salon business.

2--$30 overestimate on her uniform cleaning bills.

3--A miscalculation in the number of miles Romano drove his car. Romano stated he drove his car 1,200 miles a month, yet Expert no. 2 multiplied that by 12 months and arrived at the figured 18,000.

 

But, if you'll note their final figures, you'll see that they cheated the Romanos more than they did Uncle Sam.

Expert No. 1 didn't even bother to ask Romano if he used his new car in his business. Neither No. 1 nor No. 2 figured in any depreciation for the car.

These omissions alone cost Romano a lot of his own money.

Other deductions completely overlooked by Nos. 1 and/or 2 (and legally listed by the government and accounting firm men) included various auto upkeep expenses, cost of utilities in operating home beauty parlor, purchase of briefcase for business, use of home phone for business and depreciation of typewriter.

Victor Romano paid out $21 to one man, $16 to another for professional service. In return, he got a jumble of practically meaningless figures.

Either through incompetence, ignorance or a greed to get on to the next sucker's tax forms, they gouged him good.

Yet one of them, through sheer luck and miscalculation, came within $11 of the Internal Revenue Service auditor's final figures--while the established accountant disagreed with Uncle Sam's agent by $189.97.

I showed the latter two forms to two independent certified public accountants.

Both forms--they told me--were errorless. Human nature accounted for the wide variance, with the government man favoring his uncle and the public accountant favoring the taxpayer.

One disagreement came in tips received by Mrs. Romano, with the department man setting an arbitrary figure of $250 (25% or her net income) and the PA setting it at $100 (10%).

Romano stated $100 when asked, but acquiesced when the federal auditor told him $250 was a more "realistic" figure.

Other major disagreements came in use of auto in business (90% against 50%), parking ($5 a week against $2.50 a week) and depreciation of car (where the PA used depreciation scale more favorable to taxpayer).

The independent CPAs who studied the two forms both said they felt the PA's totals were more "realistic" than the government man's.

And the accountant who arrived at the $302.66 refund figure said he'd be willing to fight Uncle Sam about it tomorrow.

"If the government auditor was reasonable--not arbitrary--we'd win right away," he said. "If the first one wasn't reasonable, we'd eventually get high enough up to find a man who was."

Usually, this type of dispute would end in a compromise.