The Australian Taxation Office has blamed Maurice Blackburn for a $20m tax bill that could deprive survivors of the Black Saturday bushfires some of their compensation, saying the law firm could have avoided the charges.

The law firm ran two class actions which secured a combined $794m settlement for about 5,000 survivors of the deadly 2009 fires, but the money has been unpaid for more than two years.

A case management hearing at the supreme court in Melbourne this week heard that the tax on the interest accrued for the settlement fund could be $20m.

Maurice Blackburn principal lawyer Andrew Watson said the ATO’s assessment was unfair and had come as a “shock” to the firm, which draws its substantial costs from the interest on the account.

“While it won’t affect the timing of payments starting to be distributed to our clients this year, and the net effect is a few cents in the dollar on recoveries, we believe the tax office’s decision is wrong, and if our expert legal advice reaffirms that, we will fight to recover that money for clients,” he said in a statement.

The tax assessment did not deduct legal costs, meaning those costs will eat into the final amounts paid out.

Administration fees on the settlement scheme are already reported to be close to $50m and are being reviewed by a court-appointed cost law specialist. The court has previously upheld the costs as reasonable.

In a statement to Guardian Australia, the ATO said tax on class action settlements could ordinarily be avoided.

“In other instances of compensation payments, representatives for injured parties involved have either worked with the ATO upfront, or otherwise established arrangements in a manner which ensures the compensation fund would avoid any adverse tax outcomes such as tax payable on interest etc,” they said. “We are not aware of why this was not undertaken in this case.”

The ATO said it was working with the law firm to “achieve an alternative tax outcome”.

“We acknowledge this is a difficult situation for all involved,” they said. “Unfortunately, the law prevents us from changing the tax outcome, due to the way the arrangements in this case were established.”

Watson said that response was disingenuous.

“We have been engaged with the ATO since June 2015, awaiting its decision regarding the taxation treatment, so it is disingenuous at best for the tax office to now be backpedalling from its decision and trying to redirect blame for a problem of its own making,” he said.

Maurice Blackburn is managing the settlement scheme, which is expected to start paying out about 2,100 personal injury claims – about a fifth of the 10,000 claims that make up the class action, paying to 44% of everyone in the class action – by the end of the year.

The rest are expected to be paid out in 2017.

Survivors have criticised the process for taking too long after it was delayed in the middle of the year. They initially expected payments within 12 months.

The $494m Kilmore East/Kinglake claim, which was the largest ever class settlement in Australia and covered an area where 119 people died and 1,242 homes were destroyed, was finalised in 2014.

The Murrindindi/Marysville claim, covering an area with 40 deaths and 500 homes destroyed, was settled for $300m in February 2015.

The claims cover areas hardest hit by fires which killed 173 people across Victoria and destroyed more than 2,000 homes in one deadly day – 7 February 2009.

Some survivors have criticised Maurice Blackburn for its high administrative costs, which come to about $1m a month.

“I’m not happy with the percentages because basically what they’re saying to people is that, you’re only going to get a fraction of what your life is worth, but we’re quite happy to take dividends out of this money,” survivor Anthony McMahon told the ABC.

McMahon lost his sawmill business at Kinglake in the fires.

“We’re still waiting,” he said. “I mean it now looks like it’s going to be another six months before we see any of this money. It may be legal but it’s morally bankrupt as far as I’m concerned.”

Watson told Guardian Australia the law firm had done “everything possible” to ensure survivors got the maximum payout.

“That includes not using a litigation funder that would have eroded recoveries by 20-40% and that includes applying to the court for $17m less in fees than an independent assessor said the firm was entitled to,” he said.