Professor Jacob L. Todres‘ article, “Current Developments in Tax Malpractice: Basics and Beyond,” will be published in the Loyola of Los Angeles Law Review. Here is the abstract:

The term “tax malpractice” was always considered as referring to a situation in which an error occurred with respect to some tax provision or in a tax-related administrative or legal proceeding. Several relatively recent cases seem to have opened the possibility that tax malpractice may also refer to a situation in which some nontax error occurred, but in which the resulting damages include an increase in taxes. To understand this aspect of the cases, the article, in Part I, explores the underlying context of the cases within New York tort law. Apart from their expansion of the term tax malpractice, each of the cases is significant in clarifying what damages may be recoverable in a tax malpractice tort litigation.

These cases involve the question of whether under New York tort law additional taxes caused by a tax professional’s negligence are recoverable as damages. To appreciate the significance of their holdings, Part II reviews recent New York developments in this area. This review spotlights how these cases are returning New York to longstanding tort doctrine and how they have not followed the path of several relatively recent cases that inexplicably applied (really, misapplied) the fraud measure of damages in tort situations. This change will align New York with the majority of  jurisdictions that allow the recovery of additional taxes.

In Part III, the article then focuses on several statute of limitations situations, one of which is particularly vexing to practitioners. In some states it is possible for the statute of limitations or repose to expire before all the elements of the underlying tax malpractice cause of action have ripened. This requires some fancy procedural footwork to commence a litigation to satisfy the statute of limitations but to then pause the litigation until the elements of the cause of action ripen. Sometimes this is successfully accomplished; other times, not.

The need for a clear scope of services agreement whenever a professional is retained by a member of the public seems obvious. Nevertheless, there sometimes is no agreement or an unclear one. Part IV then explores a number of these cases. Rather surprisingly, one of the cases involves a well-known international financial institution and a large Wall Street-type law firm.

Finally, in Part V, the article focuses on several additional recent cases, one of which serves as a reminder that egregious professional misconduct can result in very significant punitive damages.