By: Jacob L. Todres
About five years ago, I published an article exploring the areas
in which reported tax malpractice cases arose. As a secondary
inquiry, that article hereinafter referred to as Malpractice
I, also focused on the measure of damages awarded in such
cases. The result of that study indicated that many of those
cases involved general malpractice in a tax context, as opposed to
“tax malpractice.” Many of the errors involved missing time
deadlines, such as late-filing and non-filing of tax returns.
Other errors included “ignoring or overlooking some simple, clearly
mandated requirement such as making an election or obtaining
consent” when necessary. Apart from a large number of tax
shelter-related cases, which arose from the tax shelter frenzy of
the late 1970s and early 1980s, and cases in the estate
planning/estate and gift tax area, Malpractice I was
unable to identify or predict any area or areas of tax practice
more likely than others to spawn tax malpractice litigation.
Malpractice I did allay my worst fear that due to the
complexity of the tax law there would be innumerable instances of
tax malpractice involving virtually every section of the Internal
Revenue Code (I.R.C.).
In the years since the publication of Malpractice I, I
have received a number of calls and e-mails from practitioners
inquiring as to whether, in the course of my research, I had
encountered a situation “on all fours” with the one they were
working on. One of these inquiries even led me to explore
whether issuing an incorrect federal information return, such as a
W-2 form or a form 1099, could be the basis of a tort recovery
similar to recoveries for tax malpractice. These inquiries
convinced me of the continuing importance of this area. As if
further encouragement were needed, the recent Internal Revenue
Service (IRS) crackdown on attorneys and accountants involved in
the sale of overly aggressive and likely flawed tax shelters
following in the footsteps of a number of financial scandals—such
as Enron, which had accounting and tax machinations at its
core—emphasized the importance to society of a developed and
principled body of law governing when and to what extent
professional advisors might be held financially responsible for
their advice.
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.
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