Domina Law Group pc llo Wins Accounting Malpractice Appeal.     Precedent Established Governing Malpractice Rules.

Domina Law Group pc llo Wins Accounting Malpractice Appeal. Precedent Established Governing Malpractice Rules.

The Nebraska Supreme Court’s 6-1 opinion in favor of Domina Law Group pc llo’s certified public accounting clients announced important rules in the complex area of damages from alleged accounting malpractice.

The accounting firm’s client, a business man with several businesses and a complex tax return, alleged his accountants committed malpractice because they allegedly (a) failed to correctly assess and advise about the availability of tax credits to offset gains from the sale of real estate, (b) failed to advise him to pay his tax on April 15 or face a late payment penalty, and (c) should be required to pay all interest the client incurred, plus any penalties charged by the IRS because the client claimed he relied upon the accountant’s advice and, by doing so, elected against either paying his tax on time, or pursuing, and completing, Section 1031 exchange to avoid tax liability.

The taxpayer’s claims, seeking judgment of more than a quarter million dollars, were largely rejected by the jury. It returned a verdict for approximately $37,000, representing only interest and penalties, but finding no liability for any tax the taxpayer claimed he might have avoided.

Despite success at trial eliminating nearly 90% of the total claim, Domina advised the result be appealed because he believed a tax preparer cannot be forced to pay late filing penalties as a taxpayer is required by law to know the filing deadline and comply with it. On appeal, Domina asked the Supreme Court to determine what damages, if any, a taxpayer can shift to a tax preparer for interest and penalties, and under what circumstances the shift can be compelled.

The result is a first impression decision by the Nebraska Supreme Court that will control tax return preparer liability as binding precedent. The new rules pronounced by the Supreme Court are generally as follows:

Interest. Where an accountant’s negligence is, itself, the cause of a client’s failure to pay taxes when due, and the client is found by a jury to be at fault for the untimely payment, the taxpayer can recover interest. But, the taxpayer must prove the difference between the amount of interest charged by the IRS, and the value of the money not paid for taxes, but held by the taxpayer in its possession, between the due date, and the eventual payment date, of the taxes owed.

Late Payment Penalties. Generally, an accountant will not be liable for penalties due to taxing authorities for unpaid taxes unless the accountant-tax preparer’s conduct is the direct or proximate cause of the penalties. Where a taxpayer knows when taxes are due, fails to pay them, and incurs late filing penalties the burden of the late filing penalty cannot be shifted under any circumstances to the preparer.

Late Filing Penalties. But, where the penalty is a late payment penalty, and late payment is caused by the accountant-tax preparer’s failure to properly advise the client about the timing and need to make payment, the late payment penalty can, in some circumstances, be shifted to the accountant.

The decision reduces claims against Domina Law Group pc llo’s clients from more than $300,000 to less than $3,000.

The case was ordered retried to determine whether the accountant would be held liable for any late filing penalty, or any interest incurred because the taxes were not paid on April 15, but were instead paid in December, nine months after they were due, and nearly 3 months after the last possible deadline for filing a return. David Domina welcomed the opinion as, “helpful instruction from Nebraska’s Doctrinal Court in a complex area of damages law.” Domina said, “The outcome is an excellent one for the accountants. While we did not contest seriously the liability finding on appeal, and focused on the damages issues believing essentially no damages were sustained under any theoretical liability conditions, the court nearly uniformly accepted our arguments.”

Domina Law Group pc llo is a firm of trial lawyers. We specialize in complex litigation on a national basis. Our lawyers are ethical, aggressive, and committed to providing spirit and vitality to the judicial system and our client’s legal rights.