Attorney-at-Law

“BREAKING UP IS HARD TO DO”

In Uncategorized on 05/27/2020 at 16:40

The words Neil Sedaka sang, and he and Howard Greenfield wrote, in 1962, fast-forward fifty years, typify the case of Roland J. Thoma and Donna M. Thoma, 2020 T. C. Memo. 67, fled 5/27/20. And they summarize the 104 (count ‘em, 104) pages of Judge Morrison’s prose and tables.

I’m sure all you practitioners have seen the sale of a practice or business, where the founding senior partner sells to the junior, and they do a role-reversal. Whereby junior becomes senior, but senior hangs around to smooth the transition, comfort the clientele, and make sure junior don’t loot the cookie jar until senior has his (it’s usually “his”).

Senior wants to claim he’s still a partner, to get SE treatment and those good above-the-line write-offs. And of course the junior wants to keep the goodwill, for which he’s paying big bucks. But junior has also bought the shop, so senior’s powers are severely constrained. Senior would like limited partner status, but the Luna factors impinge, and thereby hangs the tale. For a quick refresher on Luna, see my blogpost “Substance Over Form,” 2/11/11, and 2020 T. C. Memo. 67, at pp. 64-65.

The Luna analysis is thoroughly fact-driven, and I won’t drive over Judge Morrison’s 104-page extravaganza.

But the key takeaways are the limitations on what Roland, outgoing alpha-accountant, could not do pursuant to the buyout agreement. What ultimately sinks Roland’s claim to guaranteed payments, partner status, or even IC, is that, when junior tossed him claiming misconduct, he filed for and won unemployment compensation.

And his eventual success getting junior to cough up the balance of the purchase price for the CPA practice doesn’t help.

Of course, as Roland is a CPA with beaucoup years of experience, the chops rain down.

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