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Akron Tax Journal

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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's 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.

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