Tax Malpractice: Areas in Which It Occurs and the Measure of Damages--An Update

(Excerpt) Primarily, this Article will analyze the tax malpractice cases that have been reported since Malpractice I was published from the vantage of substantive tax law to attempt to ascertain whether certain areas of tax law or certain aspects of tax practice seem to generate more malpractice claims than others. As a secondary inquiry, the Article will discuss the proper measure of damages recoverable on account of such malpractice

Recovery of Interest on a Tax Underpayment Caused by a Tax Advisor \u27s Negligence

(Excerpt) When a tax advisor renders incorrect advice due to negligence and a plaintiff establishes all the requisite elements of a malpractice cause of action, the most frequently encountered direct damages consist of four elements: additional taxes caused by the negligence, interest on underpaid taxes, penalties, and corrective costs incurred in attempting to eliminate or mitigate all or some of the foregoing damages. This article will focus on the recoverability of interest incurred by a plaintiff on a tax underpayment caused by the tax advisor\u27s negligence. Such interest payment is present in many, if not most, tax malpractice situations because both federal and state laws impose an interest charge on the underpayment of a tax liability. While other types of interest payments incurred by a plaintiff may also be recoverable as consequential damages, such other interest payments will not be addressed in this article. There are several reasons why I wish to focus on this area. First, and foremost, to update the analysis I presented in a recent article in light of new developments, especially in light of Frank v. Lockwood, which finally got the issues right and in which the majority and the dissent disagree about appropriate matters. The second reason I will revisit this area is that certain courts appear not to appreciate the seriousness of the issues involved, and/or the existence of divergent views. Instead, these courts simply assume the question of the recoverability of such interest is a routine matter to be dealt with summarily. Finally, other courts inexplicably persist in perpetuating erroneous statements about this area of law

New York\u27s Law of Tax Malpractice Damages: Balanced or Biased?

(Excerpt) In Part I, Alpert will be discussed. Since New York’s law on the recovery of interest—actually, on the non-recovery of interest—is more definitively established than its position on the non-recovery of additional taxes, interest will be discussed first in Part II and then additional taxes in Part III. A conclusion follows

Recovery of Interest on a Tax Underpayment Caused by a Tax Advisor\u27s Negligence

In my view, this area is relatively straightforward. There are three views that have developed. Once the views are apprehended, it should be relatively easy for a court to choose which view to follow. By presenting and analyzing the three views, this area will be appropriately elucidated and subsequently given the thoughtful attention it warrants. In Part II, I will focus upon each of the three views and explore the rationale for each view. In Part III, I will trace the development of each of the views, especially the minority view and more modem, intermediate view. The goal of this discussion is to arrive at a tally of the jurisdictions following each view, remaining fully cognizant that such tallies are, at best, subject to dispute and also quite transient. My reflections on each of the three views and their approaches will be presented in Part IV. My conclusion is that the minority view, while having made an important contribution to the development of the law in this area, should give way to the modem, intermediate view and that the few states that continue to follow it should change and adopt the modem view. A brief conclusion will follow in Part V

Multistate Taxation of Depositories: An Analysis of Legislation Proposed by the American Bar Association

(Excerpt) In May, 1979, the Council of the American Bar Association Taxation Section established a joint task force, consisting of members from the Committee on Banking and Savings Institutions and the Committee on State and Local Taxation, to review the subject of multistate taxation of depositories. The Council thought that this was an especially propitious time for such a review, since the 1976 legislation had just opened an entirely new area of taxation for the states. It was hoped that recommendations might result, the implementation of which might prevent the confusion inherent in the multistate taxation of industry from being transported into this new area. After three years of work, the task force developed proposed federal legislation to govern state and local taxation of depositories. The proposed legislative recommendation was adopted by the American Bar Association in February, 1982 as an official position of the Association. At the time of this writing, the task force is in the process of completing an extensive and detailed report on its work. It is anticipated that as soon as the report is completed, the proposed legislation will be introduced into Congress. The proposed legislation (the Bill ) has four separate and distinct aspects: a jurisdictional threshold defining the minimum level of activity within a state necessary to subject a depository to taxation within that state; a prohibition of discriminatory taxation against out-of-state depositories; a repealer of an anachronistic provision governing the taxation of Edge Act corporations; and a maximum limit on the portion of a depository\u27s tax base that a state may subject to tax.: It is the purpose of this Article to explain briefly the proposed legislation, a copy of which is contained in the Appendix hereto, so that interested parties may begin to focus upon it. It is hoped that this will result in additional input to Congress, thereby enabling Congress to act on the basis of a more complete record

Multistate Taxation of Depositories: An Analysis of Legislation Proposed by the American Bar Association

(Excerpt) In May, 1979, the Council of the American Bar Association Taxation Section established a joint task force, consisting of members from the Committee on Banking and Savings Institutions and the Committee on State and Local Taxation, to review the subject of multistate taxation of depositories. The Council thought that this was an especially propitious time for such a review, since the 1976 legislation had just opened an entirely new area of taxation for the states. It was hoped that recommendations might result, the implementation of which might prevent the confusion inherent in the multistate taxation of industry from being transported into this new area. After three years of work, the task force developed proposed federal legislation to govern state and local taxation of depositories. The proposed legislative recommendation was adopted by the American Bar Association in February, 1982 as an official position of the Association. At the time of this writing, the task force is in the process of completing an extensive and detailed report on its work. It is anticipated that as soon as the report is completed, the proposed legislation will be introduced into Congress. The proposed legislation (the Bill ) has four separate and distinct aspects: a jurisdictional threshold defining the minimum level of activity within a state necessary to subject a depository to taxation within that state; a prohibition of discriminatory taxation against out-of-state depositories; a repealer of an anachronistic provision governing the taxation of Edge Act corporations; and a maximum limit on the portion of a depository\u27s tax base that a state may subject to tax.: It is the purpose of this Article to explain briefly the proposed legislation, a copy of which is contained in the Appendix hereto, so that interested parties may begin to focus upon it. It is hoped that this will result in additional input to Congress, thereby enabling Congress to act on the basis of a more complete record

Attorney Malpractice: New York\u27s Measure of Damages--Benefit-of-the-Bargain? A Rose by Any Other Name

(Excerpt) While it might be asymmetrical and a bit intellectually troubling that there is no attractive and pithy catch phrase describing the negligence measure of damages, as there is for fraud and breach of contract damages, I do not wish to address the entire negligence area. Negligence seems to be very broad and to include many disparate segments. For instance, it includes personal injuries by automobiles and other means, medical malpractice, damage to property, malpractice by all types of professionals, etc. Many of these areas have developed unique rules to deal with their unique circumstances. I assume the existence of these many different adaptations prevent the broad negligence area from being susceptible to one simple, catchy description. I certainly am unable to suggest one. However, I wish to focus solely on one segment of the negligence area. It is the thesis of this Article that the traditional measure of damages in New York in all attorney malpractice situations, including tax malpractice, is essentially the same as the breach of contract measure of damages, that is, benefit-of-the-bargain damages. This is based primarily upon the definition of each measure of damages. It is also buttressed by cases that indicate that in attorney malpractice situations the damages recoverable are the same regardless of whether the cause of action is framed in tort, that is, negligence, or breach of contract

Bad Tax Shelters - Accountability of the Lack Thereof: Ten Years of Tax

In the 1990’s and early 2000’s the tax landscape in the United States was overrun by an epidemic of tax shelters that was unprecedented. The shelters were designed and sold by seemingly reputable large accounting and law firms. The same shelters were sold to many taxpayers. They became generic, off-the-shelf, products. However, the tax shelters had no business substance. The shelters were eventually found to be invalid by the courts. In light of the invalidity of the shelters, the large fees paid for the shelters and the large damages caused by participating in the invalid shelters, there were predictions that many malpractice suits against the sellers of the shelters would ensue. For this article I attempted to determine whether the predicted wave of tax malpractice suits occurred and what impact, if any, resulted in the area of tax malpractice litigation. Much to my surprise, there ended up being very few cases focusing on substance. There were several class actions that were settled but, in light of the settlements, offered no useful insights. Most of the other reported cases dealt with procedural issues such as whether the action must be arbitrated, federal versus state venue, statute of limitations, etc. In the end, there were only a few cases that addressed any issue of substance. The only exception was a huge case in Kentucky, Yung v. Grant Thornton LLP , that was decided in late November, 2013. The case was huge because of its length (over 200 pages) and because it awarded $20 million in compensatory damages and$80 million in punitive damages. In the article I analyze the few existing generic tax shelter cases and try to fit them into the general principles governing tax malpractice. I then also review the other developments in the tax malpractice area during approximately the last decade

Current Developments in Tax Malpractice: Basics and Beyond

It was always assumed that “tax malpractice” referred to a situation in which an error occurred with respect to some tax provision or in a tax-related administrative or legal proceeding. However, several recent cases have expanded this thinking, introducing the possibility that tax malpractice may also occur where damages include an increase in taxes—irrespective of whether there was an error that directly involved tax law. Beginning with a discussion of the evolving definition of that term as seen in the New York cases of Serino v. Lipper and Bloostein v. Morrison Cohen LLP and whether these cases may have returned New York to its traditional negligence measure of damages in such tax malpractice situations, this Article presents a survey of current developments in the tax malpractice area. While the existence of damages is an essential element of a tax malpractice claim, such damages may not become evident until many years after the negligence occurred, at which point the claim may be precluded by the statute of limitations or repose. This Article focuses on several thoughtful litigation strategies attempted by plaintiffs to navigate this dilemma. Also considered is the need for clear scope of engagement agreements between tax practitioners and clients to avoid protracted litigation; but even then, services rendered beyond the scope of engagement may result is a corresponding increase in the practitioner’s responsibility. Whether tax practitioners are generally required to anticipate future changes in tax law is addressed. And finally, also reviewed is a recent case that serves as a stark reminder that an egregious breach of the tax practitioner–client relationship may result in the imposition of significant punitive damages