Agran v. Shapiro

• Decision Date: 14 June 1954
• Citation: 127 Cal.App.2d Supp. 807,273 P.2d 619
• Court: California Superior Court
• Parties: 127 Cal.App.2d Supp. 807, 46 A.F.T.R. 896 AGRAN v. SHAPIRO et al. C. A. 8212. Appellate Department, Superior Court, Los Angeles County, California

Page 619

273 P.2d 619

127 Cal.App.2d Supp. 807, 46 A.F.T.R. 896

AGRAN v. SHAPIRO et al.

C. A. 8212.

Appellate Department, Superior Court, Los Angeles County, California.

June 14, 1954.

Walter I. Colby, Los Angeles, for appellants.

Byron Schwartz, Los Angeles, for respondent.

Garrett H. Elmore, San Francisco, amicus curiae, for appellants.

Loeb & Loeb, Los Angeles, amici curiae, for respondent.

PATROSSO, Judge.

Plaintiff instituted this action to recover the sum of $2,000 for what his complaint denominates as 'accounting services' rendered to the defendants, and from a resulting judgment in favor of the plaintiff for the amount sued for, defendants appeal.

Plaintiff is a certified public accountant practicing his profession in the city of Los Angeles, and admitted to practice as an agent before the Treasury Department of the United States. He is not, however, a member of the bar, and the question presented is whether the services in question or some portion thereof constitute the practice of law and for which he is not entitled to recover. The evidence discloses that in 1948 plaintiff was retained by the defendants as an accountant and auditor for a corporation, Motor Sales of California, Inc., which was owned or controlled by them, and also for the preparation of defendants' individual income tax returns. We are not concerned with the services rendered by plaintiff to the corporation, but only with those performed for the defendants as individuals. These considered of the preparation of their Federal income tax returns for each of the years 1947 to 1950, inclusive, as well as their estimated return for 1951 and other services related thereto as hereinafter set forth.

In the preparation of the joint return of the defendants for the calendar year 1948 plaintiff claimed as a deduction a loss in the sum of $43,260.56, which was incurred in this manner: defendants were the owners of a building in the city of Los Angeles which, under date of July 19, 1946, they had leased to one Pritchard, a dealer in used automobiles, for a fixed rental of $1,500 per month, plus 5 per cent of the net profits from lessee's operations in the demised premises. This lease, on November 5, 1947, was amended or superseded by a new agreement under which the rental to be paid was $1,500 per month, plus 5 per cent of the profits from lessee's operations upon the demised premises, as well as of the profits derived from four other used-car lots operated by the lessee at other locations, in consideration of which defendants agreed with the lessee that they would, and did, guarantee the Bank of America against loss upon all 'used cars financed by and contracts discounted with the' bank by the lessee. As part of this agreement the defendants agreed to, and did, deposit with the bank the sum of $115,000 in cash to secure their guaranty. The lessee thereafter became financially embarrassed, with the result that on December 14, 1947 the bank foreclosed against the lessee, and defendants' deposit was retained by it to cover any losses which it might sustain as the result of the bank's transactions with the lessee, and as of December 31, 1948 the bank had charged defendants' deposit with losses totalling the sum of $43,260.56, the amount claimed as a deduction in the 1948 return, as previously stated.

Following the preparation by plaintiff of the defendants' 1948 return, the exact date not appearing, plaintiff prepared and filed on behalf of each defendant a separate 'application for a tentative carry-back adjustment', Internal Revenue Code, sec. 3780, 26 U.S.C.A. § 3780, of the excess loss shown by the 1948 return ($29,074.83) to the two preceding years, 1946 and 1947. The allowance of the adjustment requested in this application, if granted by the Commissioner of Internal Revenue, would have the effect of extinguishing defendants' tax liability for the years 1946 and 1947 and as a result each of the defendants would be entitled to a refund (which they therein claimed) of the taxes paid for said preceding two years, in the total sum of $1,804.65. While the record is somewhat obscure on this point, it appears inferentially at least that such applications were granted and each of the defendants received a refund in the amount stated.

For the preparation of the 1947 return plaintiff charged and was paid the sum of $30. Plaintiff, however, submitted no statement to the defendants for the preparation of the returns for the years subsequent to 1947 except insofar as a charge for such services may be included in the bill which he submitted to the defendants under date of March 31, 1952, to which reference will hereinafter be made. In explanation of this plaintiff testified that early in 1949 he advised the defendants 'that he could not state what his fee at that time would be because as a matter of ordinary practice in the Bureau of Internal Revenue all tentative tax refund claims and income tax returns related thereto would be audited and investigated within three years from the date thereof by a revenue agent from said bureau, and therefore plaintiff would not be able to fix his accounting fee now but would charge defendants at a later date for the time and work involved in preparing said tax returns, refund claim, subsequent returns related thereto and in conferring and discussing said problem regarding this net operating business loss with revenue agent, and also would base said fee on any tax savings accomplished thereby.' It does not appear that plaintiff performed any services in connection with income tax matters for the defendants other than as stated, and seemingly no 'problem' arose in connection with any of the previous returns until August, 1951, at which time he received a call from Mr. Manson, a treasury agent, in regard to the 1949 return, in which there had been claimed as a deduction the unused portion ($7,776.01) of the Pritchard loss sustained, as hereinbefore stated, in 1948. Several meetings were held between plaintiff and Mr. Manson, in the course of which the latter stated that the so-called Pritchard loss did not qualify as a 'net operating loss' and that as a result in re-computing the returns for 1946 to 1949, inclusive, the defendants were subject to an additional assessment in the sum of $15,000. Plaintiff disputed this contention of Mr. Manson, countering with the claim that the loss was a 'net operating loss' which could be 'carried back' and 'that tax benefits and refunds could be secured for the years 1946 through 1950.' Plaintiff further testified that in his several conferences with Mr. Manson he 'cited him numerous cases' and 'spent five days in the county law library and in his office reading tax services, cases, reports and decisions.' Again he testified that 'he spent approximately four days in reading and reviewing over one hundred cases on the proposition of law involved.' As a final result of the conferences between himself and plaintiff, Mr. Manson stated that he would submit a report recommending an additional assessment of $6,280, and such report was thereafter filed by him. At a later date another treasury agent, Mr. Stewart, was assigned to the case, with whom plaintiff met upon at least one occasion and had at least two telephone conferences. Following these conferences plaintiff was advised by Mr. Stewart that he was in agreement with plaintiff's contention but that he 'wanted to talk to the defendant once more'; Mr. Stewart further stating that the assessment would be reduced from $6,280 as recommended by Mr. Manson to $200, which latter amount would be assessed because of certain errors in the return unrelated to the matter of the loss in question. Some time later, in January or February, 1952, plaintiff was advised by Mr. Shapiro that he no longer needed plaintiff's services, and at the same time was advised that Mr. Shapiro had signed an agreement with Mr. Stewart closing the matter. Following this, and under date of March 31, 1952, plaintiff submitted a bill to the defendants in the sum of $2,000 which reads as follows:

'To Professional Services Rendered:----

'Conferences with revenue agent Edgar Manson re his examination of the income tax returns of Morris and Helen Shapiro for the years 1946, 1947, 1948 and 1949.

'Research of the problems involved and preparation of arguments to overcome the following proposed assessments of income tax:

                '1946 and 1947              Morris  $1,804.65
                                            'Helen   1,804.65
                '1949                                5,671.29
                                                    ---------
                'Total Proposed Assessment          $6,280.59
                                                    ---------
                                                    ---------
                

'Conference with conferee James A. Stewart and subsequent discussion of the questions involved by telephone, resulting in a reversal of all disputed items contained in revenue agent Manson's report.

'Report submitted by conferee James A. Stewart resulted in a tax saving in excess of $6,000.00 and was cleared to the Collector of Internal Revenue on February 5, 1952.

'Total due for services to date $2,000.00.'

While courts have experienced difficulty in formulating a precise and all-embracing definition as to what constitutes the practice of law, the one generally accepted is that announced in Eley v. Miller, 7 Ind.App. 529, 535, 34 N.E. 836, 837, and adopted by our Supreme Court in People v. Merchants' Protective Corp., 1922, 189 Cal. 531, 535, 209 P. 363, 365, as follows: "As the term is generally understood, the practice of the law is the doing and performing services in a court of justice, in any matter depending therein, throughout its various stages, and in conformity to the adopted rules of procedure. But in a larger sense it includes legal advice and counsel, and the preparation of legal instruments and contracts by which legal rights are secured although such matter may or may not be depending in court." (Emphasis added....