Certified Public Accountant (CPA) Cannot Be Sued for Incorrect Form W-2.
(Parker's Federal Tax Bulletin: August 5, 2013)

The former employee of a CPA firm's client could not sue the CPA firm and one of its accountants for damages for the filing of a false Form W-2; damages could be obtained only from the person responsible for filing the Form W-2. Swartwout v. Edgewater Grill LLC, et al., 2013 PTC 197 (D.C. Mich. 7/12/13).

In 2010, David Swartwout worked for Edgewater Grill from May through October. As a result of receiving what he said were fraudulent W-2 statements, David filed a civil action for damages against Edgewater Grill; Blanche Klaus, the sole member of Edgewater Grill LLC; H&S Companies, P.C., a CPA firm; and Ward A. Van Dam, C.P.A., the managing partner of H&S Companies. David claimed that they submitted a fraudulent Form W-2 covering his wages for 2010 and that, when he informed them of major discrepancies in his W-2, they failed to provide a corrected copy. David's complaint also included a claim of conspiracy against H&S Companies and Van Dam for filing a materially false W-2 and aiding and abetting in the preparation of a fraudulent W-2. H&S Companies and Van Dam moved for summary judgment.

Code Sec. 7434 provides that if any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, the other person may bring a civil action for damages against the person filing the return.

David argued that H&S and Van Dam created and caused the erroneous W-2 form to be filed. Thus, the court was faced with the question of whether liability under Code Sec. 7434(a) attaches to those who assist an employer in preparing and filing information returns.

A district court held that liability for filing a false information return was limited to the person responsible for filing the return, which was David's employer. The court rejected David's claims against H&S Corporation and Van Dam. The court cited Vandenheede v. Vecchio, 2013 PTC 198 (D.C. Mich. 2013), in which a district court held that, although accountants and attorneys assist in the preparation of returns, Reg. Sec. 301.6721-1 provides that only the person required to file the information return can be held liable under Code Sec. 7434. The court noted that in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), the Supreme Court held that common law claims of secondary liability cannot be used to expand the class of persons liable for statutory violations. Because no secondary liability was implied for claims under Code Sec. 7434, H&S Corporation and Van Dam were entitled to summary judgment.

For a discussion of information return penalties, see Parker Tax ¶262,130.

Parker Tax Publishing Staff Writers

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