Tax Malpractice Damages – Return to Fundamentals – Another Court Gets It Right
New York State Bar Association
If one were designing the measure of damages recoverable for negligent tax advice, the most obvious element of recoverable damages would be the avoidable extra taxes caused by the negligence. After all, minimizing taxes is at the heart of a tax representation. In most states, such avoidable taxes are recoverable. The situation in New York is more clouded. Under longstanding traditional tort principles, the additional taxes would be recoverable. However, a few outlier cases decided between 2007 and 2014 have held such additional taxes not recoverable. There does not seem to be a principled rationale for these cases. Rather, they simply rely, directly or indirectly, on Alpert v. Shea Gould Climenko & Casey. While Alpert did hold additional taxes were not recoverable, Alpert involved a fraud cause of action, and correctly applied longstanding principles of damages recoverable in fraud causes of action. But damages recoverable for fraud are different from, and more limited than, damages recoverable in tort causes of action. In Serino v. Lipper, the First Department recognized this distinction and held that additional avoidable taxes are recoverable in negligence-based tax malpractice actions. Recently, a lower court, Bloostein v. Morrison Cohen LLP, recognized the distinction and held that such additional, avoidable taxes are recoverable. While Bloostein reached the correct result, by failing to focus on the developments in this area of the law, Bloostein missed an opportunity to clarify the law and to clearly reset it on its proper path.