contract-law civil-law damages
Is incurring taxes on someone a damage?
<p>Imagine this scenario.</p>
<p>Person A owns a investment account managed by broker B.</p>
<p>A tries to sell an investment in a tax advantaged way.</p>
<p>B maliciously does the transaction wrong, causing A to incur taxes. For example, selling as a short term instead of long term gain by doing the transaction earlier than instructed.</p>
<p>Are there civil damages?</p>

<p>Possibly. I am analyzing this issue under generally applicable, majority, common law rules of law (applicable in the U.S. (except Puerto Rico and Louisiana) and in most countries that are or were part of the British Commonwealth), when not modified by statute or regulation.</p>
<p>If there is a contract regarding what is to be done, the measure of damages is &quot;the benefit of the bargain&quot;. And if the benefit of the bargain included an express or implied warranty that the transaction would be conducted in a manner that obtained a tax benefit and that tax benefit was not obtained, the difference between the economic value of the agreed result and the actual result would be recoverable as monetary damages (which would then raise the meta issue of the tax treatment of the recovery which is beyond the scope of this answer).</p>
<p>Two other kinds of claims in addition to a straight breach of contract claim are also plausible.</p>
<p>One is a claim for breach of the duty of good faith and fair dealing arising in every contract, which requires that someone who has discretion in the way that they perform a contract to do so in a manner that reflects the intent of the parties regarding the objectives and purposes of the contract when carrying it out. By intentionally disregarding the intent of the parties, in how the transaction would be carried out, damages in the form of additional taxes could be incurred.</p>
<p>Another is a claim for breach of fiduciary duty in a case where the person carrying out the transaction and the person for whom the transaction was carried out are in a fiduciary relationship, such as a customer and a broker with discretionary authority, or an agent and principal, or a lawyer and client. Usually, when someone is entrusted with discretionary management of someone else's money or property, a fiduciary relationship arises by operation of law. The taxes unnecessarily and intentionally incurred in this case could also be damages for a breach of fiduciary duty.</p>
<p>On the other hand, in contracts and transactions of this character, there would frequently be an express contractual waiver of any right to recover for taxes incurred, allegedly wrongfully, in the transaction.</p>
<p>This waiver would be effective against a claim for breach of contract or a claim alleging that a fiduciary negligently violated a duty of care owed to the person upon whose behalf the transaction was conducted.</p>
<p>But, waivers of rights are generally ineffective and void as contrary to public policy, when the wrongdoing purportedly waived is intentional or conducted in bad faith in a manner that is knowingly contrary to the mutual intent of the parties to a transaction.</p>
<p>So, while a waiver would be effective if someone accidentally incurs additional taxes for someone else, it generally wouldn't be effective if someone screwed up the tax outcome intentionally as the question proposes in its example.</p>
