I just saw that Baker Tilly has acquired Seiler LLP, a
CPA firm located in San Francisco and practicing for well over half a century.
There is nothing unusual here. Many older CPAs are
looking to retire. In some cases, the firm may have planned for transition and
brought in, developed, and retained a pipeline of ownership-interested younger
CPAs. The older CPAs retire, the younger
CPAs step up and the firm continues.
In other cases, there is no such pipeline, and the
older CPA’s exit plan is a sale to another firm.
The matter caught my eye because a client is suing Seiler
for negligence. The matter is still in court. I thought the grounds for
negligence was … different.
It is not our usual brew of java, but let’s talk about
it.
It starts with a married couple: Eric Freidenrich and
Amy Macartney. They hired Seiler to prepare their 2019 joint tax return. The
return was filed in December 2020.
COMMENT: You may be thinking that the return was filed late (that is, after October 15) and penalties and interest would be due. That is not true here, as the return showed an overpayment of almost $450 grand. There normally will be no interest and penalties on refund-due returns, as penalties and refunds normally apply only when balances are due the IRS. The risk to a refund return is waiting too long to file a return. Remember, the statute of limitations on filing is three years. Wait past those three years and you will lose your refund.
For some reason, Eric and Amy did not use a home
address on their return. They instead used their financial advisor’s address, a
practice they had followed for years.
Now, a couple of things happened after 2019 and during
2020 before Seiler filed the return:
· Eric
and Amy divorced.
· The
financial advisor moved.
On first blush, I would be concerned about the divorce.
A CPA (or his/her firm) should think long and hard about representing a divorcing
couple. The reason is simple: which one of the two is the client? Representing
both can create a conflict of interest, and a CPA is supposed to maintain
independence and avoid such conflicts. Failure to do so can result in a hearing
before a State Board of Accountancy.
The refund arrived in April 2022.
The two had signed their separation agreement in June
2021.
The separation agreement included language that Eric
would be responsible for additional taxes due during the term of marriage, but -
to be fair - he would also be entitled to any refunds.
Amy did not know that the IRS refund got held up. The couple’s
routine was to deposit in the couple’s Fidelity account, and the separation
agreement had Amy receiving 60% of the Fidelity account.
The refund was almost $450 grand, and 60% of that –
approximately $270 grand – would have gone to Amy.
She was not amused.
I would not be either.
She sued Seiler for negligence.
Notice that she did not sue her ex-husband.
Where is the negligence?
Seiler – as a firm – knew that that advisor had moved.
It should have used the new address.
Did the tax team – a subset of Seiler – also know that
the advisor had moved? Information moves well enough in a CPA firm, but it
would be false to say that it moves flawlessly. It is possible that the tax department
did not know, but Amy is suing Seiler, not the tax department.
Seiler (or rather, their attorney) tried to get the motion
dismissed.
And there is a quick lesson here about torts. Torts
are civil law. Think of torts as suing someone. You bring suit, not the government.
It is conduct between private parties.
The idea behind a tort is to restore the injured party
(as much as possible in the circumstance) to where he/she would have been had
the other party not acted or failed to act. A goal of tort law is to see the
world as it could have been, not as the world is now.
Well, under that description Amy would have received
60% of the IRS refund. Seiler injured her. Her ex did not injure her, as he stated
in the divorce decree that he would keep any tax refunds relating to the marriage
term.
The Court therefore saw reason for tort action and would
not grant summary motion for dismissal.
What does this mean? It means that the Court will hear
the case against Seiler for negligence.
As a tax CPA, it bothers me that I could get my firm sued for something I did not even know. That said, I get it. The firm knew. However, Eric and Amy saw the address on the return. Their attorneys would also have seen the address. Do we know if the financial advisor timely filed a change of address with the IRS? Seiler might not be the only party with some measure of fault.
