Los Angeles Law Firms Reach $4.6M Settlement Over City Taxes

A California judge has preliminarily approved a $4.6 million class action settlement over allegations the City of Los Angeles improperly calculated a business tax owed by lawyers and law firms by requiring firms to include reimbursed expenses when they calculate gross receipts.

Plaintiff Berkes Crane Robinson & Seal LLP, a Los Angeles law firm, filed the Los Angeles business tax class action lawsuit in an effort to change the policy by which gross receipts are calculated for taxing purposes. BCRS also sought to recover overpayments of taxes, penalties and interest paid by Class Members.

BCRS claims that it would sometimes advance costs, such as witness fees and travel expenses, on behalf of a client. Clients are obligated to reimburse the law firm for any advanced costs.

In June 2009, the City of Los Angeles reportedly conducted an audit of BCRS for tax years 2007 to 2009 and concluded that BCRS underreported its gross receipts by not including reimbursed expenses in its calculations. BCRS disputed this assessment and sought a review hearing. The hearing officer upheld the auditor’s conclusion and BCRS paid the amount of the assessment under protest.

BCRS subsequently appealed the decision to the Office of Finance – Board of Review, which affirmed the decision because its “guidelines for lawyers” reportedly require reimbursed travel expenses and expert witness fees to be included in the calculation of taxable gross receipts.

The Los Angeles business tax class action lawsuit was initially filed on Nov. 15, 2011 after the City of Los Angeles failed to act on BCRS’s claim for a refund of the allegedly improperly assessed taxes.

Class Members who can claim monetary payments include lawyers and law firms who paid a tax on reimbursed expenses. One subclass will cover Class Members who between May 1, 2010 and Dec. 31, 2013 were audited by the City and as a result paid additional tax, interest and penalties based on a recalculation that included reimbursed expenses. The subclass includes those who used the additional assessment as an offset against an overpayment.

A second subclass will cover Class Members who in annual tax renewals for tax years 2010 to 2016 included reimbursed expenses in their own calculations and paid the resulting amount as tax. Class Members who meet the requirements for both subclasses, known as “crossovers,” may be entitled to a refund as a member of both subclasses.

Special provisions apply for a group of 25 specific Class Members who were audited between 2010 and 2013 but for whom the City cannot find records that show the amount of any assessment levied for failure to pay tax on reimbursed expenses. Members of this “Group of 25” will have an opportunity to submit their own records of the audit to the city showing any additional assessment based on reimbursed expenses.

Eligible Class Members may be entitled to a refund of all taxes paid on reimbursed expenses during the class period for their respective subclass. Payments may be reduced pro rata if the settlement funds are insufficient to provide a full refund to all qualified claimants.

In addition to providing a cash refund to eligible Class Members, the City of Los Angeles has also agreed to injunctive relief under which it is prohibited from requiring lawyers or law firms to include certain reimbursed expenses in their calculation of gross receipts.

According to the Los Angeles business tax class action settlement, the settlement administrator will mail notices to Class Members by Nov. 14. The final fairness hearing has been scheduled for March 2, 2018.

Top Class Actions will post updates to this class action settlement as they become available. For the latest updates, keep checking TopClassActions.com or sign up for our free newsletter. You can also receive notifications when this article is updated by using your free Top Class Actions account and clicking the “Follow Article” button at the top of the post.

Berkes Crane Robinson & Seal LLP is represented by Michael R. Brown A Professional Law Corporation.

The City of Los Angeles Law Firm Tax Class Action Lawsuit is Berkes Crane Robinson & Seal LLP v. The City of Los Angeles, Case No. BC473557, in the Superior Court of California, County of Los Angeles.