Thursday, October 8, 2015

Attorney sues over bad advice about how to structure lawfirm to reduce tax bite

Catherine Benouis, a family law solo based in Austin, sought the advice of other professionals on how to restructure her lawfirm to minimize her tax bill and ran afoul of IRS rules as a consequence, according to the petition filed on her behalf on October 7, 2015 by another lawyer, Laura Richards Sherry, with Dallas-based THE HARRIS FIRM, in Harris County District Court.

Suing both in her own name, and in that of the lawfirm entities - CATHERINE BENOUIS, P.C. and BENOUIS LAW LTD, LLP - Benouis states that she had been practicing as a sole practitioner and that she was provided faulty legal and accounting advice regarding the benefits of reorganizing of her practice, which was supposed to relieve her from having to pay self-employment tax under a limited partnership structure.

She alleges that she later had to amend her tax returns and pay past-due self-employment tax because the IRS determined that the limited partnership structure does not provide a basis for non-payment of self-employment tax with Benouis as the sole individual partner in the partnership, performing the majority of legal services on behalf of the law firm, and acting as a partner rather than as an ordinary investor. She alleges that the Defendants represented the scheme as viable and legal when they should have known better.

Benouis names six defendants. The list includes both individuals and entity defendants: Loren R. Cook; Loren R. Cook, P.C.; Loren R. Cook & Associates, Ltd, LLP; Conrad Cook & Associates, Ltd, LLP; Ronald Mcelmurry; and November Consultants, LLC.
In her 19-page original petition Benouis invokes theories of fraud, negligence, negligent misrepresentation, and breach of fiduciary duty in addition to breach of contract. She also pleads the discovery rule, apparently because at least some of the causes of action would otherwise be time-barred. Benouis sues for restitution of the fees she paid the defendants, back taxes, penalties, and interest owed to the IRS, which she attributes to the defendants' wrongful conduct, and professional fees paid to CPAs for assistance with the IRS audit and the amendment of the tax returns.

Excerpt from Original Petition in Attorney's suit complaining of
faulty tax advice, and the financial aftermath of following it 
Interestingly, it appears that she seeks to hold the defendants liable for the self-employment taxes that she was ultimately not able to avoid, rather than merely the penalties and other costs resulting from their nonpayment and the need to file amended tax returns.

Cause No. 2015-59511, assigned to the 80th District Court, Harris County, Texas.

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