Subject: IRS -- The Hand That Taxes the Cradle 
Date: Published: 3/25/92 (120 lines)
Source: Wall Street Journal. Copyright Dow Jones & Co. Inc.

    IRS -- The Hand That Taxes the Cradle
    ----
    By Stephen Kreider Yoder

    The Internal Revenue Service figures that 1.5 million
 families cheat the tax collector by paying household
 employees under the table.
    I wish we were one of them.
    Instead, after hiring a nanny, my wife and I joined the
 other half-million U. S. homes that dutifully mail off the
 dozens of documents that tax agencies demand from households
 with even one employee.  The price of our clean conscience is
 paperwork so nightmarish that our tax accountant won't touch
 it.
    You saw the movie about the diabolic nanny.  Now meet her
 evil cohorts, the tax forms from hell:  There's the 940, the
 942, the SS-4, the DE-1, the DE-3DP and the DE-43.  Add W-2s,
 W-3s, W-4s and W-5s, plus the 940-EZ, whose name is clearly a
 cruel practical joke by IRS staffers.
    For our good-faith attempts to decipher these barbarous
 forms, we've gotten rebukes from our state and a campaign of
 Kafkaesque bullying by the Internal Revenue Service, which
 recently threatened to throw us in jail for a $27.11 mistake.
    Many of my otherwise lawful friends, faced with these
 forms, have joined the cheatin' majority.  Nanny agencies say
 many clients don't report wages after trying the paperwork.
 It's the last straw for busy homes already tempted to take
 self-dealt tax breaks or that hire illegal aliens.  (The IRS
 swears it doesn't snitch on the visa-less.  No, honest.)  The
 devout few that file, one accountant tells me, "are the same
 people who make full and complete stops at stop signs."
    Shortly after hiring a nanny for our toddler two years
 ago, we started to receive inch-thick tax packets from the
 Feds and our state.  The booklets told us that, because we
 paid her more than $50 a quarter, we had to report.  Among our
 duties:  Register ourselves, report wages, pay Social Security
 and unemployment and disability tax, issue those "W" forms;
 and mail this stuff quarterly or annually or just once to the
 state or the Feds or Social Security, depending on the form.
 Simple.
    I saw what I had to do.  I turned the job over to my wife.
 She soon began exhibiting symptoms I hadn't seen since her
 college-finals days.  Once a quarter I would find her
 shuffling calculators, workbooks, 942s and DE-3DPs, with her
 teeth clenched and hate in her eyes.
    The IRS tries to help in its little ways.  It offers a
 booklet for household employers and special instructions for
 Form 942, which those sardonic IRS staffers officially
 estimate should take 31 minutes to prepare.  Among its useful
 hints:  "To figure your FUTA tax liability, multiply by .008
 that part of the first $7,000 of each employee's annual wages
 you paid during the quarter."  My wife soon formed close
 relationships over the IRS hot line and took personal days to
 visit state tax advisers.  But despite her diligence, she was
 bound to drop an innocent dollar here, an unnoticed form
 there.  The IRS noticed, and a deluge of reprimands began
 arriving.  At best, the letters delivered more forms.  At worst
 ...well, let's read from some recent missives.
    One, dated Oct. 21, 1991, says we shortchanged the IRS on
 a quarterly return, then screams in capitals:  "WE HAVE
 PREVIOUSLY BILLED YOU FOR THE OVERDUE TAX AND MUST NOW
 CONSIDER FILING A NOTICE OF FEDERAL TAX LIEN AND SEIZING YOUR
 PROPERTY, WAGES OR OTHER ASSETS TO SATISFY YOUR UNPAID TAX.  "
 The only previous bill, dated just a month earlier, was for
 $37.98.
    Another hyperventilating IRS notice, rebuking us for a
 slightly overdue $27.11 on a form we overlooked, threatened
 us with "CRIMINAL PROSECUTION THAT INCLUDES A FINE,
 IMPRISONMENT, OR BOTH.  "
    Clearly, virtue is not its own reward.  After two years of
 this nonsense, I tried to foist the lot onto our tax
 accountant.  "Sure, I'll do them," he said.  "At gunpoint."
 More calls yielded a grim truth:  CPAs detest employee-payroll
 forms so much they often farm out their own; H&R Block won't
 touch them.
    Meanwhile, the temptation to cheat beckons like a bad
 angel, though the IRS says it notices when filings stop.
 Apparently unable to ferret out hardened nannytax cheats, the
 agency terrorizes taxpayers that try to do the right thing.
 One mother in Cupertino, Calif., abandoned the forms when her
 kids hit school age and didn't need a nanny.  Two years later,
 an IRS henchman phoned to announce a "delinquency inquiry" on
 her.
    There is also, of course, the risk that your nanny could
 fink.  Moreover, with no statute of limitations for unfiled
 forms, the wrath of the IRS knoweth no bounds.  In a 1986
 case, a New York family paid penalties for off-record wages
 paid to a housekeeper in the 1960s.  The ex-employee, at 72
 years old, had filed for Social Security benefits.
    On paper, the IRS has a big stick:  penalties for not
 filing and a 100% fraud fine if you knew you were sinning.
 Recent local catches:  a family with a foreign au pair, a
 grandmother who didn't report payments to a personal nurse, a
 bed-ridden AIDS patient who didn't declare wages to his care
 giver.  "The system is full of people," warns the spokesman,
 "that thought they might get away with it."
    Actually, it's mostly full of people that do get away with
 it.  Tax experts agree there's a slim chance of getting caught
 not reporting household wages if you've never filed.  With
 bigger crooks to catch, the IRS doesn't aggressively hunt
 transgressing homes, says Gerald Portney, a tax expert at
 KPMG Peat Marwick.  "The service is very concerned with return
 on investment," he says, "and the return here is very poor."
    Meanwhile, filers and flouters alike can join me in a
 prayer that Congress will pass a tax-simplification bill it
 will consider this year, one calling for just one annual
 filing from household employers.  As for me, it's too late to
 leave the moral minority now.  I expect even more attention
 from the IRS after writing this.
    ---
    Mr. Yoder is a reporter in the Journal's San Francisco
 bureau.

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