The accounting version of the proverb, “For want of a nail a kingdom was lost,” is being alleged in a lawsuit filed by owners of Rita’s Italian Ice franchises in New York and Connecticut.
The DeAngelis family – Joseph C., Irene and Joseph M., of Dutchess County – accused their longtime accounting firm, Brendon Pierson Inc. of Wall Township, New Jersey, of malpractice. They are demanding $5 million in compensation in a lawsuit filed in federal court in White Plains.
“The defendants committed a series of gross errors in their professional services,” the complaint states, causing the DeAngelises to suffer severe “damages and lost profits.”
The complaint also names accountants Brendan J. Pierson and Jeffrey M. Kotch.
“I’m not going to make any comment at this time,” Kotch responded in a brief telephone conversation with the Business Journal.
The accounting firm worked for the family from 1996 to late 2015, providing business and personal services, including tax returns, payroll and investments.
The DeAngelis family owns Rita’s stores in Poughkeepsie, Fishkill, Peekskill and Brooklyn, New York, and in Danbury and Bethel, Connecticut.
The problems began in 2011 when they sold seven Dunkin’ Donuts stores and the accounting firm allegedly failed to file final franchise tax returns. Years later, the Nov. 27-dated complaint states, the family learned of the oversight and was penalized by state and federal tax agencies.
In 2011, they withdrew $37,000 from a retirement account to buy a Rita’s Italian Ice store. They were required to file a tax form within 90 days, but the accountants allegedly missed the deadline, causing a $55,000 tax liability and tarnishing the family’s credit ratings.
The firm allegedly failed to include the retirement fund information on personal tax returns for 2011. Years later, the family discovered the omissions when federal and state tax agencies sent notices and “raided” their bank account, causing checks to bounce.
They said Kotch paid one of the tax bills in 2012 out of his or his firm’s pocket, “admitting error.”
The family claims that their 2014 personal tax returns were never filed and that copies they received did not include $223,033 in early retirement distributions, $214,187 in real estate transactions, stock sales and dividend income.
“The tax return was haphazardly put together and plain wrong,” the complaint states.
They forwarded state and federal tax notices to Kotch.
“We really need to get this sorted out, it is becoming a big problem,” a May 2014 email to Kotch stated. “I can’t have the tax and finance enforcement divisions coming to my house.”
The family continued to receive tax notices, but the firm allegedly ignored their pleas for help.
“The silence was deafening,” the complaint states.
In 2012 and 2014, mortgage companies denied their attempts to refinance their home at lower interest rates.
In 2014, they were denied a $500,000 loan to open stores in Bethel and Poughkeepsie. Instead, they borrowed money against a real estate company they own, cashed in a retirement fund and put charges on an American Express credit card.
The family claims they were unable to open new stores or were delayed because of tax and credit issues.
They invested tens of thousands of dollars, for instance, in a “dream” location on Surf Avenue in Coney Island. They bought the franchise agreement, paid for architectural drawings, formed a corporation and posted signs that Rita’s was coming soon. But New York declined to issue a sales tax certificate because of unpaid taxes and tarnished credit.
The store never opened.
In 2015, they invested more than $82,000 for a Rita’s franchise in Danbury. They claim a loan was rejected due to their tarnished credit, causing them to lose the investment as well as expected yearly revenue of $250,000 to $275,000.
The same problem allegedly stopped them from opening a store in Fishkill and delayed the opening of a store at a second location in Coney Island.
In 2015, the family asked Kotch for copies of all business and personal tax returns for the previous two years. Kotch sent documents, but three state tax returns were missing, the complaint alleges, because they “simply didn’t exist.”
In 2016, a family member was not allowed to co-sign a student loan for his son, and in 2017 another family member was denied a mortgage because a federal tax judgment had been mistakenly filed in his name.
The family has hired a new accounting firm to “clean up the mess.”
The lawsuit alleges accounting malpractice, gross negligence, breach of contract and breach of fiduciary duty.
As a result of “wanton and reckless behavior,” the DeAngelis family charges, they have suffered “fear of arrest, fear of people knocking on their home door, embarrassment and mental distress.”