Opinion ID: 1969692
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: Bailey was admitted to the Delaware Bar in 1975. He is, and was at all relevant times, the managing partner of the law firm Bailey & Wetzel (the Firm). As managing partner, Bailey is responsible for maintenance of the Firm's books and records and is responsible for the filing and payment of all employee payroll taxes and corporate taxes associated with the operation of the Firm. He also is responsible for supervising any employee to whom any of his duties as managing partner might be delegated. Martin Zukoff, CPA, an auditor for the Lawyers' Fund for Client Protection, conducted three investigatory and compliance audits of the Firm's financial books and records and provided the Office of Disciplinary Counsel (ODC) with three audit reports dated, respectively, November 29, 2000, January 22, 2001, and May 3, 2001. The investigative audits were directed specifically at the Firm's books and records and tax filing and payment obligations. The compliance audits were to determine whether the Firm was in compliance with Rule 1.15 of the Delaware Lawyers' Rules of Professional Conduct (DLRPC) and whether Bailey's Certificates of Compliance, filed as part of this Court's annual lawyer registration process, were complete and accurate. Another auditor, Joseph McCullough, conducted an extensive review and follow-up investigation of the Firm's bookkeeping and tax filing and payment obligations and submitted a fourth audit report to the ODC dated October 29, 2001. The audits revealed numerous deficiencies in the Firm's bookkeeping obligations. The most significant deficiencies, which Bailey conceded, included the following:  The Firm had not performed escrow account reconciliations or reconciliations of cash balances to total client funds held for the one-year period from December 1999 through November 2000.  The Firm had discrepancies in its escrow account reconciliations for the period January 1999 through June 1999. Specifically, six checks, totaling $27,800, had been written from the Firm's escrow account and deposited into the Firm's operating account to cover shortages or anticipated shortages in the operating account. No specific client escrow funds were charged with these withdrawals. To reconcile the account balances, nonexistent deposits in transit, totaling $27,800, were reflected in the escrow account ledgers.  An inactive escrow account had overdraft balances from January 2000 through October 2000.  An escrow account contained Firm funds in excess of the allowable $500.  The Firm had not performed operating account reconciliations from December 1999 through March 2000 when the Firm's bank closed the operating account due to excessive overdraft charges.  The Firm's operating account had overdraft balances every month from September 1998 through March 2000, with the highest negative balance reflected as $12,104 in July 1999.  The Firm had not performed reconciliations on its new operating account from February 2000, when it was opened, through September 2000.  The Firm's new operating account had overdraft balances from September 2000 through January 2001. With respect to the Firm's tax reporting and payment obligations, the audit reports revealed the following:  The Firm did not timely file and pay federal employment payroll taxes [2] for the first and second quarters of 2000. These obligations were untimely paid on November 2, 2000. No money had been deposited into a Tax Deposit Account in anticipation of the payment of these taxes.  The Firm did not timely file and pay federal employment payroll taxes for the fourth quarter of 2000. The total obligation was over $60,200. As of the time of the parties' stipulation, the Firm still owed about $13,000.  The Firm did not timely file and pay federal employment payroll taxes for the first quarter of 2001. At the time of the parties' stipulation, the Firm still owed about $65,000. No deposits had been made into a Tax Deposit Account for this quarter.  The Firm did timely file, but did not timely pay, its federal employment payroll taxes for the second quarter of 2001. Although about $10,000 had been deposited into a Tax Deposit Account, the total obligation was in excess of $51,000. As of the time of the parties' stipulation, the Firm still owed over $41,000.  The Firm did not timely pay its quarterly federal unemployment taxes for 2000. Taxes for all four quarters of 2000 were paid in February 2001.  The Firm did not timely pay its monthly state employee withholding taxes for 1999. The outstanding balance was untimely paid on January 16, 2001.  The Firm did not timely file and pay its state employee withholding taxes for 2000 or the first two quarters of 2001. All taxes were untimely paid.  The Firm did not timely file and pay its state unemployment taxes for all quarters of 2000. All state unemployment taxes were untimely paid on February 2, 2001.  The Firm did not timely file and pay its city employee withholding taxes for all quarters of 2000. These taxes were untimely paid in 2001.  The Firm's corporate taxes for 1996, 1997, and 1998 were untimely filed and paid. Corporate taxes for 2000 were timely filed but not timely paid.  The Firm did not timely file and pay its Delaware gross receipts taxes for the second and third quarters of 2000. In addition to the Firm's tax delinquencies, Bailey personally was delinquent in paying some portion of his federal income taxes for 1998, 1999 and 2000, although the tax returns were timely filed. Moreover, Bailey falsely certified to this Court on his Annual Lawyer Registration Statements for 1998, 1999, 2000, and 2001 that he was in compliance with his tax and/or record-keeping obligations.