Court Opinion

ID: 9548356
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:02:13.405912+00
Date Added: 2024-06-11T15:18:50.996721
License: Public Domain

MATTHEWS, Chief Justice,
joined by RABINOWITZ, Justice, dissenting.
I disagree with the majority’s conclusion that the Clearys’ cause of action is not ripe for adjudication. As explained below, there was evidence that the Clearys suffered irremedial damage as a result of Thomas’ negligence in liquidating their corporation. Therefore, I would affirm the jury's damage award.
One theory which the Clearys presented was that they retained Thomas for advice on the best way to sell their business from a tax standpoint. Shelby Stastny, an expert tax accountant, testified that a stock sale, rather than a sale of assets, would have effected a significant tax savings. He further testified that Thomas’ failure to complete the sale of assets within twelve months after the adoption of the plan of liquidation, as required by I.R.C. § 337, compounded the Clearys’ tax liability.1 Stastny testified that if Thomas had structured the sale as a sale of stock, the Clear-ys would have owed the I.R.S. $165,682, whereas taxes owed following a sale of assets in violation of the Section 337 deadline total $373,141 — a difference of $207,-459.2
Stastny testified that the Clearys personally owe taxes to the I.R.S. under the transferee liability sections of the Tax Code. He stated that there is not a statute of limita*1095tions applicable to this case because no tax return has been filed.3
The fact that the Clearys incurred an added tax liability as a result of Thomas’ negligent advice is sufficient to give rise to a cause of action.4 The law recognizes that incurring a liability for taxes is a damage, as language in our decision in Linck v. Barokas & Martin, 667 P.2d 171 (Alaska 1983) aptly illustrates.5
In Linck it was alleged that an accountant and attorneys had negligently failed to advise Gertrude Linck to disclaim her inherited interest in her deceased husband’s estate within the six month deadline imposed by § 2518 of the Internal Revenue Code. A timely disclaimer would have allowed the property to pass directly to her children without payment of a second estate tax upon Gertrude’s death, or without a gift tax when she gave property to the children during her lifetime. After the disclaimer deadline had expired, Gertrude gave some of the property to her children and incurred, but had not paid, gift tax liability. Gertrude and her three children sued the accountant and the attorneys. The trial court dismissed the complaint for failure to state a claim. On appeal, we reversed.
The defendants in Linck claimed that their negligence had not “caused actual present damage.” Id. at 173. We rejected this, stating that Gertrude had “incurred a present liability to pay gift taxes and attorney’s and accountant’s fees, in connection with gifts made to her children in lieu of disclaimed property.” Id. (emphasis added). Further, as to the children’s claim, we stated that they “are damaged not only because they mil receive less upon the death of their mother (imposition of ‘second’ estate tax), but also because they will have to forego the use of the money until their mother’s death.” Id. at 174 (emphasis added).
Just as the widow in Linck could maintain an action because she had incurred a present liability to pay taxes, but had not paid them, and just as the children in Linck could sue because the amount they would receive would be reduced by as yet unpaid taxes, the Clearys in the present case have incurred an unpaid tax liability which is a realization of damages sufficient to permit suit.
Another instructive case is Yandell v. Baker, 258 Cal.App.2d 308, 65 Cal.Rptr. 606 (1968) overruled on other grounds, Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 98 Cal.Rptr. 837, 846 n. 29, 491 P.2d 421, 430 n. 29 (1971), cited with approval in United States v. Gutterman, 701 F.2d 104 (9th Cir.1983). In Yan-dell, Mr. and Mrs. Yandell retained an attorney (Baker) and accountants for advice concerning several tax problems of corporations owned and controlled by them. After reviewing the Yandells’ personal and corporate financial structure, Baker concluded that he could minimize the Yandells’ taxes by dissolving one of their corporations, distributing its assets to the Yan-dells, then redistributing those assets to two other corporations owned by the Yan-dells. Baker advised the Yandells that his corporate dissolution plan would provide them with long term capital gain treatment on the surplus earned from their dissolved corporation. The Internal Revenue Service concluded, however, that the manner and method of dissolution was actually a corporate reorganization. Therefore, the Service taxed the transaction at ordinary income *1096tax rates instead of the more favorable capital gain rates.
The Yandells sued Baker for the negligent advice that resulted in the added tax liability. On appeal, the court specifically addressed the issue of when a lawyer’s negligent tax practice damages a client:
Once [the Yandells’ corporation] was dissolved and its assets were distributed, the liability for payment of ordinary income rates, rather than capital gains rates, arose and the damage was done —even though the amount of damage or liability could not be determined until the Internal Revenue Service acted later.
65 CaLRptr. at 610 (emphasis added), quoted with approval in United States v. Gutterman, 701 F.2d at 106.
Like the plaintiffs in IAnck and Yandell, the Clearys incurred an unnecessary tax liability as a result of negligent tax advice. They suffered actual harm when the consequences of the negligent advice became “irremediable.” See Robinson v. McGinn, 195 Cal.App.3d 66, 240 Cal.Rptr. 423, 428 (1987) (“harm is ‘actual and appreciable’ only if and when it becomes irremediable”). “Irremediable, by definition, means something which is impossible to remedy; something which is lost, or incorrigible.” Id. In Linck, when Mrs. Linck’s attorneys failed to advise her within six months of her husband’s death that she should disclaim her inherited interest, the error became irremediable and, as we held, she incurred actual damages at that time. Linck, 667 P.2d at 173. In Yandell, the Yandells incurred actual damages when their corporation was dissolved and its assets distributed. At that point, their liability for added taxes became impossible to remedy. Therefore, they were damaged at the time of dissolution and distribution. Finally, the Clearys incurred irremediable damage when the corporation was liquidated through a sale of assets rather than the more favorable stock sale.6 They were further damaged when Thomas failed to complete the sale-of-assets liquidation within twelve months. The damage done in both instances is actual and irremediable.
The majority concludes that the tort in this case will be complete “[o]nly when the tax deficiency is assessed.” Majority Opinion at 1094. However, the assessment of the tax deficiency is simply the last time— in the context of tolling the statute of limitations — that a plaintiff can claim ignorance of his actual damages as a result of professional negligence. “From that point on, plaintiffs can scarcely claim that they [do] not know that they [are] exposed to substantial tax liability....” Brower v. Davidson, Deckert, Schutter & Glassman, 686 S.W.2d 1, 3 (Mo.App.1984).
The jury, as trier of fact in this case, determined that the Clearys incurred actual damages as a result of Thomas’ negligence. The testimony of Stastny supports the jury’s findings. The notice of tax deficiency is nothing more than the Clearys’ “ticket to the Tax Court,”7 a “procedural device designed to inform the taxpayer that he has owed taxes since their due date. Its purpose is so that he can properly take an orderly appeal. It is not a new assessment of taxes never owing.” Chisholm v. Scott, 86 N.M. 707, 710, 526 P.2d 1300, 1303 (App. 1974) (Hendley J., dissenting).
I would affirm the jury’s award of damages.

. See Treas.Reg. § 1.337-1 (as amended in 1965):
[I]f a corporation distributes all of its assets in complete liquidation within 12-months [sic] after the adoption of a plan of liquidation, ... no gain or loss shall be recognized from the sale of the property ... during such 12-month period. All assets ... must be distributed within the 12-month period.

. In addition, he calculated penalties and interest under various alternative circumstances.

. See 26 U.S.C. § 6501(c)(3) (1982): “In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time."

. In addition, the Clearys are entitled to recover the $3,000 in fees paid Thomas for his faulty advice. See Orsini v. Bratten, 713 P.2d 791, 794 (Alaska 1986).

.See also Yandell v. Baker, 258 Cal.App.2d 308, 65 Cal.Rptr. 606 (1968) (liability for payment of ordinary income tax rates, rather than lower capital gains rates constituted actionable damage even though Internal Revenue Service had not yet acted), overruled on other grounds, Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 98 Cal.Rptr. 837, 846 n. 29, 491 P.2d 421, 430 n. 29 (1971), cited with approval in United States v. Gutterman, 701 F.2d 104, 106 (9th Cir.1983).

. See also McKeown v. First Nat'l Bank of Cal., 194 Cal.App.3d 1225, 240 Cal.Rptr. 127, 130-131 (1987) (error became irremediable when appellants acted on negligent tax advice).

. Garbis, Junghams & Struntz, Federal Tax Litigation, ¶ 3.02[2], at 3-6 (1985).