Hamadeh v. Spalding, Index No. 114060/2009, 1/14/2015 (Friedman, J.)

By Tim Broschardt | Staff Writer

Accountant malpractice; domicile; NYS statutory residence; proximate cause

Plaintiffs were a married couple. Defendants were the couple’s accountant and the company for which the accountant worked. Defendants had advised Plaintiffs to relocate to another state to avoid paying New York State capital gains taxes on the sale of their business. Defendants counseled Plaintiffs that they could maintain a residence in New York, so long as they did not spend more than 183 full days in New York. Plaintiffs subsequently purchased and inhabited a Pennsylvania residence, while tracking the amount of time they spent in New York. However, a New York State Department of Tax and Finance audit determined that because Plaintiffs maintained a New York residence and extensive ties to the community, they had not changed their domicile. Furthermore, the audit found that they were statutory residents of New York under NYS Tax Law 605(b)(1) because they owned an in-state residence and were present in New York on more than 183 days of any given year. Plaintiffs were forced to pay a large sum for unpaid taxes and brought this suit, based on a theory of accountant malpractice, to recover their losses. Both parties moved for summary judgment.

To assert a successful claim for accountant malpractice, the court must find that the Defendants’ departure from the accepted standards of practice proximately caused plaintiff’s injury. Defendants admitted to providing incorrect advice, but argued that they were not the proximate cause of Plaintiff’s loss because they would have also been forced to pay the unpaid taxes based on their failure to change domicile. The Court found this unpersuasive, stating that the Defendants’ actions need not be the sole proximate cause of the injury, but merely “a proximate cause.” Therefore, because Defendants’ advice led to Plaintiffs being deemed statutory residents, they were the cause of one of the grounds on which the Plaintiffs were found liable for the taxes.

Defendants also claimed that Plaintiffs would have exceeded the 183 day limit regardless of the incorrect information. However, the court found that Plaintiffs meticulously followed Defendants’ advice by keeping records of all time spent in New York, thereby providing prima facie evidence that Defendants’ incorrect advice proximately caused Plaintiffs’ tax liability.

Because the Court found that Defendants were a proximate cause of Plaintiffs’ injury, it granted Plaintiffs’ summary judgment motion.

Hamadeh v. Spalding, Index No. 114060/2009, 1/14/2015 (Friedman, J.)


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