Hello everyone and welcome to this Ethics Alert blog which will discuss the recent opinion of the New York Appellate Court suspending a lawyer for allowing a client to deposit funds in his trust account to assist in avoiding federal tax liens. The opinion is: In the Matter of: Bruce G Pritikin, No. M-2485 (February 5, 2013. The disciplinary opinion is at: http://www.nycourts.gov/reporter/3dseries/2013/2013_00714.htm.
According to the opinion, the lawyer and his law firm were retained by a client in 2006 to provide services related to business management, tax consulting, and the preparation of tax returns. The services also included collecting the client’s income and paying his bills. In May 2007, the client told that lawyer that his bank account had been attached by a federal tax lien and the client requested that that the lawyer open another account to deposit checks and pay bills.
Since he was aware that the client also had many other tax liabilities, the lawyer sought the advice and legal counsel of an experienced tax attorney. The lawyer testified that the tax lawyer suggested that the client could continue to conduct his business through a lawyer trust account (IOLA account); however, the tax attorney denied that he ever told the lawyer that he could resolve the client’s tax lien issue by opening the IOLA account.
The lawyer ultimately opened the IOLA account and deposited this client’s funds into the account. The lawyer stated that, while he was concerned that depositing these funds into his IOLA account would assist the client in avoiding the tax lien(s), he thought that this would ultimately assist the client in satisfying the tax obligations. Between May 2007 and October 2008, the lawyer repeatedly deposited the client’s funds into the IOLA account and used the funds to pay the client’s personal and business expenses.
On November 14, 2007, the lawyer allowed a partner at his law firm to deposit $450,000.00 belonging to a second law firm client into the IOLA account. The funds were intended to satisfy that client’s tax obligations; however, between November 14, 2007 and November 23, 2007, the lawyer authorized his bookkeeper to withdraw $107,585.98 belonging the second client to satisfy the first client’s obligations. The lawyer stated that he 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.
The lawyer expressed remorse for his actions and made it clear that he understood that an IOLA account could not be used as a business account. He also testified about his charitable endeavors including his work as president of the New Jersey chapter of the United Cerebral Palsy and other lawyers and a judge testified on his behalf. The referee recommended that the lawyer be found guilty and received a public censure.
The opinion imposed a two (2) year suspension stating that “(w)hile 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.”
Bottom line: This lawyer may have truly believed that he was doing the right thing for his client and the improper withdrawal of funds from one client to pay another may have been an innocent error; however, the use of a trust account to hide assets of a client from a federal tax lien is clearly a serious violation of trust account rules. Please don’t do it…
…and be careful out there!
Disclaimer: this blog does not contain any legal advice and the comments herein should not be relied upon by anyone who reads it.
Joseph A. Corsmeier, Esquire
Law Office of Joseph A. Corsmeier, P.A.
2454 McMullen Booth Road, Suite 431
Clearwater, Florida 33759
Office (727) 799-1688