Upon the recommendation of their accounting firm, owners of automotive dealerships reduced their tax liability through stock ownership plans. The IRS disapproved of these plans, issued notices of deficiency to the owners, and, after litigation, agreed to settle claims against the owners for payment of tax on the income protected by the plans. Owners then brought professional negligence, breach of contract and other claims against the accounting firm. In relevant part, the superior court concluded that the professional negligence claims accrued when the IRS issued its notices of deficiency, and, therefore, those claims were barred by the statute of limitations.
The court of appeals reversed. It rejected a bright-line rule (adopted by some courts) that the owner’s claims accrued upon the IRS’s notices of deficiency. It also rejected a different bright-line rule (adopted by some other courts) that the claims accrued upon a final decision in the tax appeal. Instead, the court of appeals adopted a fact-based approach to claim accrual. The court reasoned that the notice of deficiency did not necessarily commence the statute of limitations because continued consultation with an accountant after the notice of deficiency based on a reasonable belief of IRS error is legally inconsistent with requiring the commencement of a malpractice action regarding the same conduct. Additionally, the court stated that conclusion of the tax appeal is not a bright-line accrual date because a client may have received notice of wrongdoing before that date. The court also noted that adopting a fact-based approach to claim accrual brings accounting malpractice claims in line with analogous cases involving the statute of limitations for attorney malpractice.
Judge Cattani delivered the opinion; Judges Johnsen and Gemmill concurred.
Posted By: William D. Furnish