ACCOUNTING MALPRACTICE ACCOUNTANTS WRONGLY ADVISED CLIENT THAT IT DID NOT HAVE TO COLLECT SALES TAX IN ITS BUSINESS SUBSEQUENT TAX AUDIT AND PENALTIES| Settlement: | | Islip Stair Building & Millwork Co., Inc. v. Victor Kitay & Co ., CPAs; Victor Kitay; and Barry Lerner 95-009330 | | Case #: | | XV/48-48 | | Date: | | Thursday, August 29, 1996 | | Court: | | Nassau Supreme | | Plaintiff Attorney: | | Anthony T. Ballato, Massapequa | | Plaintiff Expert: | | Marvin Rosenthal, tax attorney, accountant, and sales tax consultant, Plainview | | Facts: | | Editor s note: This action, which settled in August 1996 for $165,000 plus the waiver of outstanding CPA fees of approximately $10,000, just came to our attention. Defts. were Pltf. s accountants. Pltf. corporation, which manufactures and sells stairs to consumers and contractors, claimed that from 1976 to 1994, Defts. were negligent in advising Pltf. that its business (capital improvements) did not require collection and payment of New York sales tax under Article 28 of the New York Tax Law. Pltfs. contended that, as a matter of law, it was obligated to collect and pay sales tax when it did not install the stairs itself, as this was a pure sale. Pltf. also contended that it was required to pay use taxes, which Defts. did not advise in the course of their general accounting services. In 1994, after a routine audit, Pltf. was assessed $ 192,000 in back taxes plus $178,000 in interest and penalties. The penalties were eliminated and the interest was reduced with the aid of Deft. s expert in showing the tax department that Pltf. was innocent of any willful evasion, but rather due to the reliance on its accountants wrong advice.
Defts. staff accountant conceded in EBT testimony that Defts. were negligent. Specials: $192,000 plus interest charged by New York State Dept. of Tax & Finance. Carriers: CNA and Interstate Insurance.
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