The Hawk family has sued the Chambliss Bahner & Stophel law firm and the Johnson, Hickey & Murchison accounting firm for over $5 million, claiming faulty tax advice.
The Circuit Court complaint was filed by Sue Hawk, the estate of her late husband Bill Hawk, and Billy F. Hawk Jr.
It says the Hawks had sought tax advice in relation to the proceeds of the sale of two family bowling alleys to a group known as MidCoast.
The complaint says the advisers stated that the Hawk interests could lawfully reduce their federal income taxes by about $350,000 by consummating the sale instead of liquidating the bowling entity and distributing the cash.
The suit filed by attorney Michael Richardson says, "The advice was wrong. Instead of saving $350,000, in late September 2009, the IRS assessed transferee tax liability, penalties and interest on the Hawk interests for the unpaid 2003 taxes.
"For nearly a decade, the Hawks spent millions in proceedings in the United States Tax Court, the Sixth Circuit Court of Appeals and the United State Supreme Court, attempting to vindicate the tax and legal advice received from the advisers, all to no avail.
"Ultimately, on Dec. 10, 2019, having exhausted all avenues to vindicate the advice, the Hawk interests paid nearly $4 million to the IRS to satisfy the tax liability."
The suit says Bill Hawk was in the bowling alley business for over 40 years, while operating two bowling alleys (Holiday Bowl). He owned 81.25 percent of the family business and wife, Sue, had 18.75 percent. After his death, Sue Hawk became president and sole director.
It says the family accepted an offer from New England Bowl and Corley Family Realty to purchase the bowling alleys and a Russell Stove Candy store for $6.5 million. The sale closed on July 1, 2003. The family received about $4 million and realized a gain of about $2.7 million.
After the sale, the family held cash, prepaid taxes and a farm on Snow Hill Road, while owing $1,232,203 in taxes.
The suit says they then were introduced to MidCoast Investments, which "purported to be in the business of collecting distressed debt." MidCoast said it wanted to purchase the Hawk family stock as an alternative to liquidation. The suit says MidCoast maintained that maneuver would bring tax advantages to the Hawks, allowing them to avoid any taxes in 2003.
The Hawks have sued MidCoast in a separate filing.
The suit says, "In an Aug. 6, 2003 meeting, the advisers advised the Hawk interests that the proposed MidCoast transaction was a viable tax avoidance and would provide the Hawk interests with substantial tax savings."
It says the Hawks asked for this opinion in writing and received it, then went ahead with the deal.
The suit says MidCoast financed the purchase with a $3.45 million loan from Sequoia, an offshore entity, and had agreed to pledge Holiday Bowl's cash to Sequoia to secure the loan.
The complaint says Sue Hawk received $753,015 in the MidCoast transaction, and the estate received $3,466,286.