[Editor’s note: This post originally appeared on the legal and accounting malpractice blog of Attorney Chris Trebatosky. It was written by Brian Mahany for US Legal Malpractice.]
EEPB is one of Houston’s largest accounting firms. It is also one of the best medium sizes firms in the nation (number 36) according to Accounting Today. Being good doesn’t mean its accountants are perfect, however. Several years ago, a company called Cohen Acquisition Corp (“CAC”) sued EEPB for accounting malpractice. CAC said that EEPB auditors failed to discover that an executive was stealing from the company.
Was EEPB guilty of accounting malpractice? Who knows? The court dismissed the case on a technicality.
CAC apparently failed to file a franchise tax return with the State of Texas in 2008. Although it probably owed no tax, most states say that returns still must be filed even if they are so called “zero returns.” By failing to file the return, the Texas Secretary of State revoked CAC’s corporate charter. Three years later, the company apparently realized the problem, filed the missing returns and had its charter reinstated.
No harm, right? Wrong.
A Texas trial judge ruled that the company had no legal standing at the time its alleged accounting malpractice claims accrued. Even though the company is now in good standing, there were consequences to not having a charter for three years.
Revoked charters are a common event. Companies get busy and forget to file returns, especially when no taxes are due. The failure to file a franchise tax return and pay a couple hundred bucks in filing fees, however, means that CAC will never get its day in court and be able to present its accounting malpractice case. (We assume that EEPB would deny any wrongdoing.)
One could say that EEPB simply got lucky. We wonder, however, whose job it was to prepare the missing franchise tax returns. Although this accounting malpractice case resulted in a dismissal for technical reasons we wouldn’t be surprised to see another accounting or legal malpractice claim being filed against the company that forgot to file the returns. Such an action, assuming there was an outside tax return preparer, may be beyond the statute of limitations, however.
As a general rule, professional malpractice actions in Texas must be brought within 2 years of the wrongdoing. (There are exceptions.)