Tuesday, February 5, 2013

Lawyer Suspended For Helping Client Avoid Tax Lien

An attorney who allowed his client to avoid a tax lien through use of an escrow account has been suspended for two years by the New York Appellate Division for the First Judicial Department.

The court described the misconduct:

In 2006, respondent and his firm were retained by a client to provide services related to business management, tax consulting, and the preparation of tax returns. The services also included collecting this client's income and paying his bills. In May 2007, respondent learned that his client's bank account had been frozen by a tax lien and he sought respondent's help in opening another account to deposit checks and pay bills. Aware that his client also had a host of other questionable tax liabilities, respondent sought the advice and legal counsel of Comeau, an experienced tax attorney. While Comeau denied that he ever counseled respondent to resolve this client's tax lien issue by opening an IOLA account, respondent testified that it was Comeau who suggested that this client could continue to conduct his business via an IOLA account. Thus, respondent opened an IOLA account into which he deposited this client's funds. While he was concerned that depositing these funds into his IOLA account assisted this client in avoiding tax liens, respondent nevertheless expected that this would ultimately aid this client in satisfying his tax obligations. Between May 2007 and October 2008, respondent repeatedly deposited this client's funds into the IOLA account, using the funds to pay this client's personal and business expenses.

On November 14, 2007 respondent allowed a partner at his firm to deposit $450,000 belonging to a second firm client into his IOLA account. The funds were intended to satisfy that client's tax obligations. Between November 14 and November 23, 2007, respondent, by authorizing his bookkeeper to make withdrawals from the IOLA account, allowed $107,585.98 belonging this second client to be used to satisfy the first client's obligations. Respondent was unaware that the first client had insufficient funds in the account to cover his obligations and attributed the mistake to his bookkeeper's unfamiliarity with IOLA accounts.

On sanction:

...respondent expressed remorse for his actions and made it clear that he understood that an IOLA account could not be used as a business account. Respondent also testified about his charitable endeavors including his work as president of the New Jersey chapter of the United Cerebral Palsy. The Referee also heard from New Jersey Superior Court judge Paul Armstrong, who having known respondent for 35 years, testified that his behavior was aberrational, and that respondent had always adhered to high ethical and professional standards. Lastly, Jerry Carp, an attorney, testified on respondent's behalf, averring that he had always been forthright and possessed great integrity...

While in this case the respondent was not attempting to shield his own assets from liens levied against his personal assets, his conduct, intentionally designed to avoid the attachment of a tax lien, is no less egregious and involves dishonesty, fraud, deceit, or misrepresentation, violation of DR 1-102(a)(4) of the Code of Professional Responsibility. Suspension, rather than public censure is therefore warranted.

(Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2013/02/an-attorney-who-allowed-his-client-to-avoid-a-tax-lien-through-use-of-an-escrow-account-has-been-suspended-for-two-years-by-t.html

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