When the tail wags the dog . . . Accountants have a fiduciary duty to their clients (sometimes)

In Gerzog v. Goldfarb, 206 A.D.3d 554, 171 N.Y.S.3d 477, 2022 N.Y. Slip Op. 4120 (N.Y. App. Div. 2022), the Court found that an accountant owes a fiduciary duty to a client if the accountant knew of and concealed illegal acts and diversions of funds by one partner of the client (partnership) yet failed to withdraw from representing the client (partnership).

The Court stated the general rule that–unlike attorneys, who generally owe a fiduciary duty to their clients–accountants do not (in general) owe a fiduciary duty to their clients. In certain circumstances, however, accountants do have a fiduciary duty to their clients. Specifically, in this case, the Court found that the accountant falsely recorded on the client-partnership’s income tax returns the personal expenses of one of the three partners as “case preparation expenses” of the client-partnership even though the accountant knew that those were personal expenses of the one partner and that deducting those expenses as client-partnership expenses would reduce the profits available to be distributed to the other two partners in the client-partnership.