Tax Estoppel Defeats Claim

On October 29, 2020, the First Department issued a decision in Shyer v. Shyer, 2020 NY Slip Op. 06213, holding that tax estoppel defeated a claim, explaining:

In the summer of 2014, 2015, and 2016, Zyloware exercised its option to buy seven of Robert Shyer's shares each year; it paid for each purchase over the course of 12 months. In the spring of 2015, 2016, and 2017, Mr. Shyer and his wife, plaintiff Catherine Shyer, filed joint tax returns for 2014, 2015, and 2016. Each tax return says they sold seven shares of Zyloware, lists the selling price, and treats the portion of the selling price that fell within a particular calendar year as capital gains.

In the instant action, Mrs. Shyer claims that her late husband never transferred title to the 21 option shares and that his estate therefore owns 56.15 shares. However, a party to litigation may not take a position contrary to a position taken in an income tax return. Having declared under penalty of perjury on her joint tax returns that she and her husband sold seven shares in each of 2014, 2015, and 2016, Mrs. Shyer may not now take the position that they never sold the shares at issue.

In its motion, Zyloware also sought a declaration that plaintiff could not contest the accountant's calculation of the option price. However, the fact that a party attested to the amounts declared in his tax returns does not amount to a concession that said amounts were justified. The tax returns simply represent the amounts that were in fact received by plaintiffs in the subject year.

(Internal quotations and citations omitted).

The results in a complex commercial litigation often turn on the facts more than the law (which is why it is complex). The rule of tax estoppel, discussed above, is one tool the courts use to force people to keep their stories straight when it comes to their finances. If you or a client have questions regarding the evidentiary relevance of tax returns, contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com.