Tax Malpractice Damages: A Comprehensive Review of the Elements and the Issues

• Published in: The Tax lawyer Vol. 61; no. 3; pp. 705 - 773
• Main Author: TODRES, JACOB L.
• Format: Journal Article
• Language: English
• Published: Washington Section of Taxation, American Bar Association 22.03.2008; American Bar Association
• Subjects: Accountancy; Accountants; Advisors; Attorneys; Breach of contract; Damage claims; Damages; Defendants; Income taxes; Injuries; Laws, regulations and rules; Legal consultants; Litigation; Malpractice; Negligence; Plaintiffs; Professional malpractice; Professions; Recoverable damages; Speculative damages; State court decisions; Tax attorneys; Tax benefits; Tax courts; Tax planning; Tax preparation; Tax returns; Taxpaying; Torts; United States > US
• ISSN: 0040-005X

This article explores the proper measure of damages in tax malpractice litigation. The author will focus on damages caused by attorneys and accountants interchangeably. In tax malpractice situations, the most direct types of damages encountered consist of additional taxes resulting from the malpractice, interest and penalties imposed on the additional taxes, and corrective costs incurred in attempting to eliminate or mitigate all or some of the foregoing damages. Since the determination of recoverable damages is a matter of state law, differences among the states are to be expected and do in fact exist. In its attempt to make a plaintiff whole, the law permits recovery for not just the direct damages caused by a defendant, but also for all damages resulting because of the defendant's negligence. Damages for emotional distress or mental anguish are generally not recoverable in tax malpractice situations, though a number of exceptions exist in especially egregious situations.