In Daunno v. Crincoli (Jan. 22, 2007), New Jersey’s Appellate Division rejected an interesting claim for negligence against a tax preparer. The case arose from the following facts:

Plaintiff Camille Daunno’s husband, Ted, engaged defendant, Crincoli, to prepare delinquent personal tax returns for the couple and business tax returns for Ted’s law practice for tax years 1991 through 1996. During the fi ve-year period at issue, Camille earned little or no income herself and would have only been required to fi le a return for 1995 (when she earned less than $10,000). Other than signing the personal return, Camille had no involvement in the preparation of the tax returns. Camille never met or communicated with Crincoli, nor did she provide Crincoli with any information needed to prepare the returns. Crincoli’s communications were solely with Ted. Ted provided Crincoli with all of the information needed to prepare the returns, including erroneous information that the marital home was jointly owned with Camille. Based on the information provided by Ted, Crincoli advised Ted that the couple would save approximately $55,000 in taxes by fi ling a joint return. Crincoli then prepared the joint returns and fi led same after they were signed by both Ted and Camille.

Shortly before Ted’s death, Camille discovered that Ted had failed to pay the taxes. When attempting to sell the marital home, Camille learned that tax liens had been placed on the property to secure Ted’s business liability for federal withholding tax, interest and penalties. Camille ultimately fi led for bankruptcy and settled the federal and state tax liabilities. Camille then sued Crincoli and his fi rm for accounting malpractice, asserting that he had failed to advise her that, by fi ling a joint tax return, she could be exposed to personal liability for taxes, interest and penalties relating to her husband’s business – liabilities that she would not have borne had she fi led separately.

At trial, Camille’s accounting expert testifi ed that Crincoli had deviated from accepted accounting practices by failing to explain the risks of fi ling a joint return to both spouses. The expert conceded, however, that these “accepted practices” did not derive from standards set by the AICPA or the IRS, but rather were based upon his “personal” standards. In contrast, Crincoli’s expert testifi ed that Crincoli had acted properly and should not have been expected to investigate the accuracy of the information provided by the husband or to discover that the marital home was held in the wife’s name. The expert testifi ed further that it was not uncommon for one spouse to act as the agent for the other in communicating with a tax preparer.

After a four-day trial, the trial judge dismissed the complaint and entered judgment in the amount of $6,000 (the outstanding accounting fees) in favor of Crincoli. On appeal, the Appellate Division affi rmed the lower court’s ruling. The appeals court agreed with the trial court’s ruling that Camille’s expert was not credible, and that the standard of care set forth by Crincoli’s expert should govern. The appeals court also noted, that even if Crincoli had been negligent, that his negligence was not the proximate cause of Camille’s damages; she did not present any evidence that, had she been informed of the risks of fi ling jointly, she would have acted differently.

While both the trial and appeals courts ultimately sided with the tax preparer in Daunno, accountants and tax preparers should consider providing a standard written disclosure to their clients making clear that they are relying on the information supplied to them by the clients themselves and that they are undertaking no duty to conduct an independent investigation to confi rm the accuracy or completeness of that information.