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A Manhattan lawyer who insists he was a partner in name only in his now dissolved firm is responsible for tens of thousands of dollars in unpaid withholding taxes, the New York Tax Appeals Tribunal has found. In its ruling, the tribunal sent at least two clear messages to the bar: � In the absence of a partnership agreement, lawyers may well find they have more partnership responsibilities and obligations than they imagined. � A see-no-evil, hands-off approach to firm finances will not prevent a partner from incurring tax liability. “[W]here a partner is presented with information indicating the strong likelihood that taxes are not being paid, such partner ignores this situation at his or her peril,” the tribunal said in Matter of Terrence P. O’Reilly, 818564. The case, which is apparently on its way to appellate review, involves Manhattan attorney Terrence P. O’Reilly and the defunct firm where he spent much of his career, Foley, Hickey, Gilbert and O’Reilly. O’Reilly, the only surviving member of that practice, is liable under the tribunal’s decision for about $60,000 in unpaid taxes. Records show that in the early 1970s, O’Reilly, then an assistant Manhattan district attorney, joined Foley, Hickey, Gilbert and Power. He was made a full partner in 1979. The partnership splintered within two years, and Mr. O’Reilly became part of Foley, Hickey, Gilbert and O’Reilly. Only two of the name partners — Mr. O’Reilly and Richard Hickey — were still alive. For several years, O’Reilly and Hickey worked together, with the former relying on the latter’s word that they were full partners. However, O’Reilly said, he had nothing to do with the firm’s business affairs and never saw its tax returns, even after demanding them from Hickey. The firm encountered financial difficulties in the early 1990s, when it came away nearly empty-handed after spending some 17 years litigating a difficult partnership accounting case. Under the retainer agreement, the firm was entitled to a 50 percent contingency fee. However, the initial award of more than $4 million was eventually slashed to about $35,000. That setback placed a severe strain on the firm, and the firm neglected to remit withholding taxes, according to court records. Eventually, the firm dissolved, Hickey died and O’Reilly filed for personal bankruptcy. In 2000, the New York State Division of Taxation issued Mr. O’Reilly 14 notices of tax deficiency and claimed he was responsible for the firm’s delinquencies. DUTY TO REVIEW TAXES O’Reilly’s main argument is that he was not really a partner, a contention the tribunal rejected. “Despite the fact that there is no evidence of a written partnership agreement and no evidence of a capital contribution by [Mr. O'Reilly] to the partnership, we agree … that a partnership existed between Richard Hickey and petitioner for the years at issue,” President Donald C. DeWitt and Commissioner Carroll R. Jenkins said in their opinion. Additionally, the tribunal said, O’Reilly had an obligation to review the firm’s tax statements, even if he would have had to sue Hickey to get them. “Although he may not have had a duty to personally file tax returns and remit taxes to the division on behalf of the partnership, [Mr. O'Reilly] was under a duty to see that the partnership did so and he was in a position to carry out this duty, even if it required legal action against Richard Hickey,” the tribunal said. It said O’Reilly’s “failure to inquire … cannot be condoned as benign neglect.” Rather, the tribunal said, “it constitutes reckless disregard of the partnership responsibility.” O’Reilly said Tuesday he will appeal. The Division of Taxation was represented by Margaret T. Neri.

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