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Supreme Court, Appellate Division, First Department, New York.

Lawrence L. GASLOW, Plaintiff-Appellant, v. KPMG LLP, et al., Defendants-Respondents.

Decided: June 23, 2005

BUCKLEY, P.J., TOM, ANDRIAS, SULLIVAN, SWEENY, JJ. Schneider Goldstein Bloomfield LLP, New York (Harvey N. Goldstein of counsel), and Venable LLP, Washington, DC (Campbell Killefer, of the District of Columbia Bar, admitted pro hac vice, of counsel), for appellant. King & Spalding LLP, New York (Rishona Fleishman of counsel), and King & Spalding LLP, Washington, DC (James T. Phalen, of the District of Columbia Bar, admitted pro hac vice, of counsel), for KPMG LLP, respondent. Steptoe & Johnson LLP, Washington, DC (Matthew J. Zinn of counsel), for QA Investments LLC, respondent. Covington & Burling, New York (Jason P. Criss of counsel), for Sidley Austin Brown & Wood LLP, respondent.

Order, Supreme Court, New York County (Richard B. Lowe III, J.), entered March 4, 2005, which, to the extent appealed from, granted defendants' motion to dismiss plaintiff's claim for back taxes and interest, unanimously affirmed, with costs.

Defendants' alleged inducement of plaintiff to invest in an Offshore Portfolio Investment Strategy (OPIS) that the IRS later determined to be illegal does not warrant recovery for the payment of taxes and interest to the taxing authorities.   Plaintiff's tax liability naturally flows not from defendants' alleged fraud or other tortious acts, but rather from the fact that he removed proceeds from his “qualified replacement property” (QRP) and deposited them in the OPIS, thereby creating a taxable event.   By removing the funds from the QRP, i.e., from securities subject to several restrictive requirements (see Internal Revenue Code, 26 USC § 1042[c][4] ), where his gain from the sale of stock had been deferred, plaintiff obtained full access to his money.   Reimbursement of his tax liability at this point would reward plaintiff by putting him in a position better than had he not made this choice to begin with (see Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 422-423, 646 N.Y.S.2d 76, 668 N.E.2d 1370 [1996];  Alpert v. Shea Gould Climenko & Casey, 160 A.D.2d 67, 71-72, 559 N.Y.S.2d 312 [1990] ).   We decline to follow the reasoning of other jurisdictions that have found to the contrary.