Jack TenneyExtra Point

by Jack Tenney, Publisher

April 2002

April fools, taxes and which came first?

I spent too much of my youth hunched over tax returns, too little time lining up putts and playing pool.

Just out of college I worked for Sam the Taxman in Dorchester, Mass., bearing down hard with a ballpoint pen to make the fourth carbon copy legible enough for clients to read. Edie, Sam’s wife, stored the third carbon copy for next year’s reference. The original was filed with the feds, and the first copy was attached to the state return. We churned out about 4,000 returns for an average fee of $17.

Within a year I was working for a conglomerate with headquarters on Madison Avenue in New York City. There, I used pencils and worked on only four returns a year. I was responsible for Connecticut, Georgia, Hawaii and Missouri. Starting with the federal return, I calculated apportionments and allocations consistent with each state’s rules. For each state, I prepared three returns. One, aggressively, to minimize the amount due. The second, eh, let’s say meekly, which always generated a higher number. The third time through, I prepared separate returns for each subsidiary (usually four, occasionally five, depending on the number of subs operating in each state).

We filed the low tax return with the state, accrued the high tax return for federal tax deduction purposes and used the last pass when calculating bonus compensation for subsidiary bigwigs.

Because the company was a pretty-big-deal outfit, the total tab for federal and state taxes ran close to $40 million. That was back in 1962 when $40 million was really worth something, as opposed to now, when $40 million is what shortstops make.

Anyway, the numbers were big enough to attract a lot of attention from tax auditors. The IRS auditor had his own office within our offices. Even on days when he wasn’t scheduled to be in, he stopped by to pick up his milk. The company, National Dairy Products, owned Sealtest, and employees at the home office got as many half pints as they could drink in one sitting. (I remember that auditors — even CPAs — were allowed to accept gifts they could consume in a single sitting.)

The toughest auditors we encountered, of course, were the staff people from the subsidiaries who always challenged our numbers because, again, of course, it affected their bosses’ compensation and, therefore, theirs.

Typically, the auditors from the states were a little out of their ken and seldom bothered us. However, that year, the New York World’s Fair opened at Flushing Meadows and every state scheduled an audit. More accustomed to beating on local, small businesses than trying to untangle intercompany transactions and reallocated-apportioned-overhead whatseys, which we used to make less tax out of more profit, they just sat there staring at the worksheet bundles, trying not to look lost. Depending on how vulnerable we really were, if they started to bird-dog the right numbers, we gave up a rounding error or two and sent them home, happy with a small percentage of what we accrued.

Amazing what foolishness could be done with a few pencils in April.