Tuesday, October 18, 2011

Taxing Situation

The New York Appellate Division for the First Judicial Department imposed a one-year suspension of an attorney for failure to file and pay state income taxes over a multi-year period.

The facts:

In 1987, respondent, an experienced tax lawyer with an LLM in tax law who, since graduating law school in 1975, practiced law at several law firms and was also employed in the tax department of an accounting firm, became an equity partner at the law firm of Strook Strook & Lavan (Strook) where he remained until 1999. Thereafter, respondent, who in 1998 earned $653,539, started a company called Retail Development Partners (RDP). In 2001, however, approximately after two and one half years with RDP, during which time respondent's yearly income precipitously dropped, never exceedeng $122,682, respondent deemed RDP a failure and returned to law firm practice, working at several law firms and ultimately joining the firm of Helpern Syracuse & Hirschtritt, LLP (Helpern). Respondent joined Helpern as a partner in 2004 and is currently so employed. Since 2001, after respondent wound down RDP and resumed private law practice, respondent's income has steadily increased, generally exceeding $200,000 per year. In 2007, respondent earned $497,667.

In 1998, respondent was diagnosed with an atrial septal defect, a congenital heart defect, which required respondent to undergo surgery. Complications from the surgery, however, left respondent with an atrial flutter, atrial fibrillation, and two heart arrhythmias, requiring further surgery in 1999. Respondent's surgery in 1999 successfully repaired his atrial flutter, however, his arrhythmias were irreparable and they continue to plague him. Besides the foregoing, in 1999, respondent was diagnosed with Type 2 Diabetes, a cancerous thyroid requiring surgery, and hepatitis C. In 2001, as a result of RDP's failure his multitude of health issues, respondent became "quite upset" and depressed and therefore began and continues treatment with a psychiatrist.

As to sanction:

It is certainly true that an extreme financial reversal coupled with mental stress during the time period within which a lawyer fails to file tax returns and pay taxes has been found to constitute a mitigating factor (Matter of Hornstein, 232 AD2d 134, 136 [1997]). Similarly, a substantial drop in income together with a significant increase in expenses has also been deemed a mitigating factor (Eppner at 153-156). In this case, however, the testimony at the hearing failed to establish that respondent's ailing health, beginning in 1998, coupled with his sudden decrease in income, beginning in 1999, prevented him from filing tax returns and paying taxes. First, respondent himself testified that his failure to file tax returns and pay his taxes were not attributable to his decreased income or due to his tax liability. Second, and more importantly, while respondent attributes depression brought about by his failed business, decreased income, and ailing health as the cause of his failure to file tax returns and pay his taxes, such claim is belied by respondent's ability to successfully manage all other aspects of his life during this same time period. Specifically, in 1998, notwithstanding respondent's heart condition, he worked at Strook where he made well over $600,000 and paid his taxes. Similarly, in 1999, despite his deteriorating health, respondent managed to start RDP, embark on a new career, file tax returns and pay his taxes. Lastly, in the seven years that respondent failed to file tax returns and pay taxes, he successfully managed his personal affairs, met all of his other financial obligations, and ostensibly-if wages are any measure-resuscitated his legal career. In sum, timing does not necessarily imply causation and here, beyond the fact that respondent's financial and health issues preceded his failure to file tax returns and pay taxes, we decline to find that those issues were the cause of his failure such that they constitute a mitigating factor.

In addition to the one aggravating factor found by the Panel, namely, respondent's failure to voluntarily discontinue and self-report his illegal behavior, we also find that insofar as respondent's gross income in 2005-2007 was $328,754, $301,213, $497,667, respectively, his income during those years, when he failed to file tax returns or pay taxes, was substantial such that his failure to pay when he ostensibly could, constitutes an aggravating factor...

The court rejected the suggestion that the ensuing conviction was a mitigating factor. (Mike Frisch)


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