In reading the article, “ Deepening Insolvency: An Emerging Threat,” by Kelly M. Hnatt, Esq., (Feb. 08, page 40) and the related article, “From the Defense: How to Combat a Deepening Insolvency Claim ,” by Michael E. Keyes, Esq., (Feb. 08, page 44) I was taken aback, as both articles indicate that over the last number of years, more and more claims of deepening insolvency have not survived the courts’ scrutiny. However, the editors of the JofA have painted a picture, through the title of the first article and by their highlighting of certain phrases, that this is an emerging threat, which it is not. If anything, in the last 18 months, the courts (the Second, Third and Seventh Circuits, the Delaware Supreme Court, as well as others) have issued opinions stating that deepening insolvency is not a tort.

A deepening insolvency claim is a claim against officers, directors, lenders, accountants and other advisers that assist an insolvent entity, or an entity that is in the zone of insolvency, in obtaining financing or prolonging the life of the entity to the detriment of the entity or the creditors.

Although the theory of deepening insolvency first arose in 1980, it was a non-issue until 2001, when the Third Circuit in Official Committee of Unsecured Creditors v. R.F. Lafferty & Co. Inc. (267 F.3d 340) ruled that Pennsylvania law would provide a cause of action under the theory of deepening insolvency. However, in the 2006 case In re CitX Corp  (448 F.3d 672), the Third Circuit, in rejecting the claim of deepening insolvency, commented that while it “cannot revisit the correctness” in its interpretation of Pennsylvania law in Lafferty, nothing “compels any extension of the doctrine [deepening insolvency] beyond Pennsylvania.”

Since CitX and (as Ms. Hnatt points out) the 2006 Delaware Chancery case affirmed in 2007 by the Delaware Supreme Court, Trenwick America Litigation Trust v. Ernst & Young LLP, et al., more and more courts have rejected the theory that deepening insolvency is a separate tort. The courts have further indicated that if there was fraud, then fraud should be raised.

Auditors should always be aware that their actions or inactions are subject to lawsuits and to review by the courts, but by painting this as an emerging issue that auditors need to worry about, it does both the authors and the JofA an injustice.

M. Jacob Renick, CPA, CIRA, CDBV, CFE
White Plains, N.Y.

I have been a regular reader of the JofA for the last 30 years, but this is my first time sending in a message. However, my question does not relate to any of the articles. My question is: What kind of owl is depicted on the cover of your March 2008 issue, and where can I see a live one like it?

I am a novice bird-watcher in my spare moments and have many birds yet to add to my life list, especially owls. I searched through my bird reference books—Kenn Kaufman’s, National Geographic ’s, Sealy’s and Peterson’s—and could not come up with the name of that owl. Owls are tough to identify unless you hear them, too. Have you thought of adding sound to the JofA?

Perhaps it is not a North American bird species. Maybe as part of some international accounting convergence project you are depicting a non-North American bird in the spirit of international cooperation. I am only familiar with North American birds. Or, perhaps it is an immature owl, and its coloration and identification points are not available yet.

I searched through the JofA for a reference to the cover picture but did not find such reference. I read through the three articles seemingly related to the picture—corporate turnarounds, voluntary IRS disclosures and disaster recovery—and did not find a reference to the picture.

I finally asked our IT director what type of bird she thought it was, being that she is also a longtime avid reader of the JofA, especially the “Technology Q&A” section, and she did not know either.

But she is the reason for this request. She has a fifth-grader at home, and she is in the process of taking the JofA back home for him to make an identification of the bird on the cover. So, if I want to be smarter than a fifth-grader, I need your response post haste.

Ronald A. Yarsevich, CPA
Potterville, Mich.

Editor's note: Ten-year-old Jonathon Jacobs, a fifth-grader at Washington Woods Middle School in Holt, Mich., correctly identified our cover model as a fledgling great horned owl. According to Colleen Olfenbuttel, a biologist with the North Carolina Wildlife Resources Commission, you can tell the owl is young by the downy covering on its head. Young great horned owls have black bills and brownish masks, and their overall color can vary, depending on region. Great horned owls are found throughout North America and in South America.

I’d like to make a few suggestions for next year’s tax software survey (“Users Grade Tax Software ,” Oct. 07, page 34). For example: Ask how well the software handles multistate corporate returns. Ask if the alternative minimum tax adjustments and preferences seem to flow. Ask how well the error check verifies things like information matching from form to form (for example, does the M-3 match page 1). Ask if the Form M-3 checks to confirm that your book/tax differences are not posted backward (in other words, does the Per Tax column [column d] compute as the result of Column a +/- b +/- c).

I realize that more expensive software is going to outshine the less expensive versions, but this year I spent $1,500 on a software package only to learn later that it doesn't handle consolidated returns. They said it did until I asked them how to open this function, and then they admitted that clients "get by" by doing all the work in Excel and attaching that.

Just a thought to help those of us who are not primarily individual (1040) return preparers be able to make a sound business investment.

Andrea Comeau-Shirley, CPA
Atlanta

Editor's note: The next tax software survey article will appear in 2009. Please send your ideas for improving the survey to joaed@aicpa.org.