A Wisconsin court of appeals upheld the dismissal of claims against two accounting firms that tried to assist a third accountant in preparing an estate tax return. This case began when Carl Merow, trustee of his father's estate, contacted the firm of Roberts, Ritschke & McNeely for advice on trust and estate matters. The firm referred the matter to Joseph Kox, an accountant who was working for Roberts at the beginning of the engagement. (Merow says the firm was retained to prepare the estate tax return, but the firm disputes this.) Kox left the firm early in November 1992, before the November 24, 1992, deadline for filing the estate tax return. In December, Merow contacted Kox at his home. Based on this conversation, Merow believed Kox was still working on the return. (Kox did prepare the return but not until well after the due date.)
It is undisputed that, during the course of Kox's engagement, he was employed by the firm of Shinners, Hucovski & Co. During that time, he sought advice on the Merow matter from Kenneth Lardinois, an accountant at the firm. Although Kox had left Shinners in June 1993, he continued to meet with Lardinois to review the return. Kox was contemplating making a qualified terminable interest property (QTIP) election on the return to avoid penalties and reduce taxes. According to Kox, Lardinois advised him "how to go about claiming a QTIP election should it be the most advantageous way to go." There was no understanding between the parties that Lardinois would have further involvement in completing the return.
On July 8, 1993, Kox met with Dean McNeely, a partner of Roberts, to discuss the return. According to Kox, McNeely immediately disagreed with him that the trust was "a QTIP trust eligible for the marital deduction." Kox then met again with Lardinois, who confirmed that Kox was properly considering a QTIP election and that the trust assets were eligible for the QTIP election. When Kox prepared the estate tax return in August 1993, he elected to treat all the trust assets as QTIP eligible property.
All parties agree that Kox should have made a partial--not a full--QTIP election. This error produced a liability in excess of $147,000. In July 1994, the trust brought an action against Kox and Shinners to recover the damages caused by the improper election. Shinners then filed a third-party complaint against Roberts alleging that it had been negligent in handling the return. Both firms moved for summary judgment...