Entrepreneurial couple left with $15MM tax bill due to accounting malpractice; Shields Legal forces accountant’s insurance carrier to pay out policy limits to fund couple’s tax appeal to SCOTUS.

A couple achieved incredible financial success through 20 years of savvy real estate and business investments while living overseas. Upon returning to the United States, they quickly faced financial ruin when the IRS pursued them for $15MM in delinquent taxes and penalties resulting from their accounting firm’s malpractice. Shields Legal designed and implemented a parallel litigation strategy to force the accounting firm’s malpractice insurance carrier to pay out the seven figure policy limits, which was used to fund the legal battle with the IRS all the way to the U.S. Supreme Court.

Introduction

Our clients were a hard-working husband-and-wife team who relocated to Europe where they lived and worked for some 20 years, achieving great financial success through their entrepreneurial pursuits. Upon returning to the U.S., their accountants improperly filed 22 years of tax returns incorrectly advising the couple that no income tax was due based on the accountants’ interpretation of an international tax treaty. The IRS disagreed with the treaty interpretation, exposing the couple to MMs in delinquent taxes and penalties.

Problem

The couple was engaged in a protracted and costly uphill legal contest with a highly motivated IRS. During the course of the IRS litigation, the couple learned that in addition to the incorrect interpretation of the international tax treaty, the accountants had committed multiple grievous acts of accounting malpractice, including submitting returns beyond the six-year statute of limitations, failing to prepare and submit required forms, and giving incorrect advice on how to properly complete other required forms. Every return and amended return prepared by the accountants was audited, with negative results. The negligence and incompetency of the accountants had exposed the couple to $15MM in delinquent taxes and penalties. Meanwhile, the couple’s life savings were being quickly depleted in tax court. The couple turned to Shields Legal for a way to get past their IRS nightmare.

Solution

Shields Legal determined that the best way to get past the IRS nightmare was to go through the accountants. Shields pursued a parallel accounting malpractice action against the accountants as a means to obtain funding for the ongoing tax appeal from a settlement with the accountants. Shields’ litigation plan included (1) gathering all of the relevant documents, records, and work papers upon which the malpractice claims were based; (2) engaging the right testifying expert who could plainly and concisely set out the accounting malpractice and the amount of damages that were directly caused by the accountants’ negligence and gross negligence; (3) securing the sworn deposition testimony of the accountants admitting to their negligence and incompetence; and (4) presenting a compelling Stowers settlement demand which would force the insurance carrier to pay out the seven figure policy limits to avoid liability for an excess judgment at trial.

Conclusion

As a result of Shields Legal’s successfully designed and executed parallel litigation plan, the malpractice insurer accepted the Stowers settlement demand and paid out the seven figure policy limits in short order. The clients used the settlement funds to pay their tax attorneys to pursue their tax appeal all the way to the U.S. Supreme Court. In February 2023, SCOTUS issued a holding that greatly reduced the couple’s tax liability exposure. The couple ultimately reached an amicable resolution of all tax issues with the IRS, ending their nightmare once and for all.