Pennsylvania~Personal Income Tax: Third-Party Tax Preparer Lacked Confidential Relationship

The Pennsylvania Supreme Court ruled that a common pleas court correctly denied class certification because no fiduciary relationship was created between a third-party tax preparer and personal income taxpayers who used the preparer’s “Rapid Refund” program. A taxpayer brought a civil action against the tax preparer alleging that the preparer took advantage of vulnerable individual taxpayers and maintained and breached fiduciary duties when it failed to inform the taxpayer that its “Rapid Refund” program was actually a short-term bank loan with high interest rates. The taxpayer sought class certification for herself and the other 600,000-plus personal income taxpayers that used the program. The common pleas court concluded that the tax preparer was not the taxpayers’ agent and that no confidential relationship existed between the parties, so the action could not proceed as a class action. The superior court overturned the common pleas court and ruled that there was enough evidence of a confidential relationship to create a jury question regarding class certification.

However, the superior court’s decision failed to account for the inherently discrete and subjective aspects of marketing and customer-relations impact. While the tax preparer may have desired to assert strong influence in the marketplace, and it may have possessed information reflecting vulnerability across a wide segment of its clientele, nothing in the record demonstrated an actual, class-wide, homogeneous effect on the 600,000 taxpayers. Therefore, the common pleas court did not err in decertifying the class based on its conclusion that a core element of the taxpayers’ proof—the presence of a confidential relationship—was not amenable to class treatment.

Basile v. H&R Block, Inc., Pennsylvania Supreme Court, No. 37 EAP 2011, September 7, 2012 , ¶204-207

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Wolters Kluwer Tax and Accounting

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