Colonoscopy Redux

When I turned fifty, my doctor gave me a colonoscopy for a birthday present.  He said, “Happy birthday.  Now, assume the position”.  After I woke up, he told me that he had pumped my intestine full of CO2 and cut out a benign polyp.  I did not notice anything other than a slight wooziness, which dissipated within minutes.  Our health insurance company paid for the procedure.  The doctor was a funny, pleasant guy whose company I enjoyed.  The experience was, on the whole, painless.[1]

I recently had another colonoscopy.  This one was metaphorical rather than literal and it was performed by an auditor from the New York State Insurance Fund, rather than by a medical professional.  I was conscious during the procedure, and it was less pleasant than the first.

According to their Wikipedia page, the New York State Insurance Fund is a governmental insurance carrier that provides workers compensation and disability benefits to employers in New York State.  It is the insurer of last resort.  Every non-Amish employer in New York State is required to purchase workers compensation insurance.  Employers who cannot purchase private insurance may purchase it through the NYSIF.

(I understand that certain private employers have complained that NYSIF’s public status gives it an unfair advantage over private insurers.  I believe that this is because the reserve requirements for the public entity are lower than those for private companies, because it does not pay entity-level tax, and because public entities do not need to collect profit margins.  That raises a host of other issues about whether public entities are better suited to provide services in certain sectors of the economy, such as health care, insurance or housing, than private rent-seeking investors.  That is a can of worms that I will crack open another time.)

After I bought my second park, I formed a management company.  When I did that, the management company purchased workers comp insurance.  Since the new company did not qualify for private insurance coverage, this was provided by NYSIF.

I think that insurance companies calculate workers comp premia the same way insurance companies calculate any type of premium.  They review the facts, isolate risk factors, put them into an algorithm, and see what the algorithm spits out.  In the case of workers comp, risk factors include number of employees, hours worked, sex and age of employees, and type of work performed.  Insurers might also want to know how many contractors are used for what type of work, to ensure that workers who should be treated as employees under applicable law are treated as such, rather than as 1099 recipients.

Workers comp is not cheap.  Since I first bought it, I have paid about $10,000 per year for it.  That is for a single LLC with three employees, two of whom work part-time.  In order to determine whether this is the appropriate amount to charge the management company, NYSIF has to audit the applicable facts every few years.  So – that’s what they do.

My first audit, which happened in 2019, was in-person.  The auditor was in her mid-to-late thirties and extremely attractive.  The meeting itself occurred in my house.  Of course there was no blurring of public and private lives.  We did not leave the kitchen, the countertop was not put to a nontraditional use, the mayo stayed in the jars, the laptop stayed open, all four feet remained on the floor, nothing other than a glass of water was offered or accepted and nothing inappropriate was said or hinted at.  I was polite and solicitous; she was competent and professional.  That said, the experience was quite enjoyable for me, and I probably volunteered more information than I should have.

Premia remained steady after that audit.

On March 25 of this year, I received a letter from another auditor, telling me that an audit had been scheduled for April 7.  The letter said that I could avoid the burden of an in-person audit by uploading certain information to the NYSIF website, to wit:

• Payroll Book, Payroll Tax Returns (941s, NYS-45s, and NYS-45 ATTs), 1099s, 1096s, W-2s and W-3s;
• Cash Book (Disbursements and Receipts)/Check Book/Day Book with Cash Expenses;
• General Ledger/1120 Corporate Income Tax Return; 1065 Partnership Return; 1040 Schedule C Sole Proprietor Return; 990 Return of Organization Exempt From Income Tax;
• Certificates of Insurance for Subcontractors Used; and,
• Contracts, Bills and Invoices (for labor, services and materials).

The auditor had a man’s name, and he did not seem to have a sense of humor.  The audit period comprised 366 days that occurred over part of 2020 and part of 2021.  The audit period neither began nor ended on a quarter-end date.

In an effort to avoid an in-person audit, I downloaded a record of all payments made by the management company to its employees during the audit period from my payroll provider and uploaded that to the NYSIF portal.  I received an email telling me that, since I had uploaded my records, I did not have to bother with an in-person meeting.  So, I cracked open a bottle of good bourbon and forgot about it.

On April 7, I received the following email from the auditor:

After reviewing the records you uploaded I am requesting the following records to complete this audit,

• NY45 & 941
• Payroll book and summary of employees salary by classification
• General ledger or bank statements with cancelled checks.  If you provide a P & L be prepared to provide details of any account the auditor requests.
• Summary of payments to subcontractors along with WC certificate of insurance
• 1099 for the audit period
• Recent corporation tax return.

I am planning to complete this as soon as possible. Please provide by April 12^th

My usual response to “I would like to have this done by the end of business on X date” is, “I would like some time alone with Angelina Jolie”. 

Or – in this case – the colleague who did the last audit.

Some of the auditor’s requests made sense.  All New York employers should file a federal Form 941 and a state Form 45 (federal and state payroll tax returns, respectively).  I had not uploaded those.  I thought that I had provided a payroll book and employee classification.  Some of the requests did not apply to me.  For example, I cannot provide a corporation tax return because the management company is not a corporation.  It is a single-member LLC disregarded as separate from its owner for federal income tax purposes.  Some of the requests were unduly invasive.  Some made no sense in any context.  Bank statements with cancelled checks?  Eat my shorts.  Summary of payments to subcontractors along with WC certificate of insurance?  What subcontractors, whose WC, and doesn’t NYSIF supply those certificates?  1099 for the audit period?  Say what?

So – I gave him what I thought I could.  I downloaded P&L for the applicable period plus the general ledger for salary payments from Rent Manager, downloaded another payroll report from the payroll provider and pulled up a PDF of my personal tax return, which included information about the company and sent them over.  I then got an email and a voice mail asking me to call the auditor because he still had several questions.

The auditor had a very thick foreign accent, which made it difficult to communicate with him.  He did not make chit-chat.  After he picked up the call, he immediately said that I needed to supply him with form 941.

-You what?

-I need 941.

-I don’t understand a word you are saying.

-I need a form 941.  That is a quarterly federal payroll tax return.

I wrote “941” on the legal pad next to me.  I asked,

-You want them for when?

-Q3, Q4, Q1 and Q2.

-Sorry – what?

-I need them for Q3 and Q4 2020 and Q1 and Q2 2021.

-First, second and third quarters?

-Exactly.

-You need anything else?

-I see you have three entities –

I groaned.

-That’s right.

-I do not have any information about the other two entities.

-That’s because they do not have employees.  They are land-owning entities.

-They are land-owning entities?

-Correct.  They do not have any employees.

-Do they have employees?

-No.

-Do they own residential or commercial buildings?

-Neither.  They are mobile home parks.

I explained that mobile home parks are tracts of land, not buildings.  Residents generally own their own homes, which they put on the land.  They lease the land.  There is even a blog about that.  It’s called Dirtlease.

After some time, I asked,

-Do you need anything else?

-That’s all.

-It was a pleasure.

I sent over the Forms 941 for the applicable quarter and tried to forget about it.  Within an hour, my phone farted again:

Hi John,

Please send me the NYS 45 for the same quarters.

I reflected, What happened to ‘That is all I need’?  Then, I went to the New York Department of Revenue site, downloaded the applicable forms and sent them over.  Then, he wrote back,

Hi John,

Do you have any employees does carpentry repair work.  I am seeing previous years you reported Payroll under carpentry.

I responded that approximately 25% of Mike’s time is spent doing carpentry.  Within thirty minutes, he wrote back,

Hi John,

There is a 3^rd page of NYS 45 called Part C, listing all employees and their gross wages.  Please sent me those.

I thought, You, Godzilla and what army?  Then, I went back to the Department of Revenue web site, downloaded Part C for the four applicable quarters and sent them over.  It has been radio silence since.

Some writer said that manuscripts are not so much finished as they are abandoned.  You reach the point of diminishing returns, and you move on to other things.  Who cares if Job still has the boils, Jesus is still under the rock, Denisov hasn’t fixed his speech impediment, Ahab and the whale are still biting each other?  That might be the same thing with colonoscopies.  You cut out the polyps that are easiest to spot and you shut things down before the patient awakes to see you posting pictures of the procedure to YouTube.  I think that might be what this auditor will do.  He wants to finish on the 12^th and he is living for the weekend.  The customer is dragging his feet.  Why make waves?  He will get his state salary either way.  Let’s just hope he does not ream me when he sets the premium level.

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[1] The colonoscopy is a convenient metaphor for any procedure that is ugly, insulting or invasive, but it should not be slighted.  It is a dirty job, but everyone is glad to get one when they need one.  Until he retired, my father did them for a living.  It’s shit to you, but it put me through college.