Moss hired Duncan to perform accounting and tax services, including preparation
of its business tax returns. Glenn owned several car dealerships and negotiated the
purchase of four new dealerships in 2005 through 2006. Duncan and other professionals
advised Glenn during these negotiations. Glenn needed a loan to complete the purchases.
To accomplish his goal, he created a new corporation, Moss Auto, as the borrower.
Glenn was the sole shareholder of Moss Auto and of the four new dealerships. A bank
extended a multi-million dollar loan to Moss Auto and the money was distributed to the
four dealerships. On Duncan's advice, Moss Auto accounted for a loan of the entire
multi-million dollar proceeds to Glenn, its sole shareholder. The dealerships made
payments to Moss Auto for loan repayments but these payments were accounted for as
1 When individual reference is necessary, Glenn and Jeri Moss will be referred to by their first names and Moss Bros. Auto Group will be referred to as Moss Auto. Glenn and Jeri are married and file joint tax returns. Jeri was therefore obligated for the eventual tax deficiency. 2
management fees instead of loan repayments. Moss's accountants kept records in
accordance with Duncan's advice on the loan to Glenn and the management fees from the
dealerships to Moss Auto. Duncan prepared tax returns for Moss in 2006 that were
consistent with his advice and Moss's records.
The FTB notified Moss in May 2010 that it was auditing Moss's 2006 tax returns
regarding the loan to Glenn. Duncan responded to the FTB's concerns about the loan, but
the FTB notified Moss on August 5, 2010, that it rejected Duncan's position and
considered the transaction to be a taxable distribution from Moss Auto to Glenn. Glenn
therefore owed more than $1 million in taxes to the FTB. After the August 5 letter, Moss
hired other professionals to contest the tax issue.
The FTB issued a Notice of Proposed Assessment on April 13, 2011, stating a
proposed assessment on Glenn of $1.2 million in taxes for the distribution from Moss
Auto to Glenn. After more than three years of dispute and negotiation with the FTB,
Moss decided to settle rather than continuing to contest the deficiency. Moss reached a
compromise settlement with the FTB on May 19, 2015, and Glenn paid his tax liability to
the FTB. Moss spent about $50,000 on other professionals to resolve this issue.
Moss filed a complaint against Duncan on August 28, 2015, alleging professional
negligence, false advertising, and unfair business practices. Duncan moved for summary
judgment or summary adjudication. The trial court found that the claims for professional
negligence and unfair business practices were barred by the statute of limitations. The
trial court concluded that Moss's claims were based on erroneous tax advice given in
2006 about how to structure the deal. The court ruled the two-year statute of limitation
3
commenced upon discovery of the accounting error in 2010 or, at the latest, when the
FTB issued its proposed tax assessment in 2011. The limitations period therefore expired
before this case was filed in 2015. The trial court granted summary adjudication for
Duncan on his causes of action for professional negligence and unfair business practice.
Moss dismissed its claim for false advertising without prejudice. Judgment was
entered on September 29, 2017, and Moss filed a timely notice of appeal.
DISCUSSION
Moss contends that the trial court erred in determining that the statute of
limitations for accounting negligence commenced in or before April 2011. Moss
contends, and we agree, that the statute began to run when Moss settled the tax deficiency
with the FTB on May 19, 2015, which was the date when actual injury was determined,
pursuant to International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606,
621–622 (Feddersen). The settlement was within two years before the complaint was
filed on August 28, 2015.
Standard of Review
Commencement of the statute of limitations is usually a factual question, but can
be resolved as a matter of law when, as here, the material facts are not disputed. (Choi v.
pp. 728–730.) Similarly, a claim of malpractice by financial advisors is not subject to the
bright-line rule established for accounting malpractice. (Choi, supra, 18 Cal.App.5th at
p. 325.) Other accountant malpractice cases are not applicable because the actual injury
in those cases was not determined after dispute and negotiation with another entity. (See
Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th
934, 937 [accountant misrepresentations about an internal audit that resulted in damages
not subject to determination by agency after contesting and negotiation]; Czajkowski v.
Haskell and White (2012) 208 Cal.App.4th 166, 170–171 [failure to discover employee
fraud due to negligent auditing].)
Feddersen provides binding authority on this issue. We conclude that Moss's
cause of action for accountant malpractice accrued when Moss reached a settlement with
the FTB on the amount of tax deficiency. That occurred within six months before Moss
filed the complaint. Accordingly, we reverse the trial court's grant of summary
adjudication that was based on the statute of limitations.
12
DISPOSITION
We reverse the judgment and remand to the trial court with directions to vacate its
order granting summary adjudication and to enter an order denying Duncan's motion for
summary judgment or, in the alternative, adjudication. Costs on appeal awarded to
plaintiffs and appellants Glenn Moss, Jeri Moss and Moss Auto Group, Inc.
BENKE, Acting P. J.
WE CONCUR:
AARON, J.
DATO, J.
13
AI Brief
AI-generated · verify before citing
Holding. In an accountant malpractice action involving tax liability, the statute of limitations begins to run when the tax deficiency is fixed by a final assessment or by the taxpayer's settlement with the taxing agency, as this constitutes the point of actual injury.
Issues
When does the statute of limitations for professional negligence and unfair business practices accrue in an accountant malpractice case involving tax advice?
Does the rule in International Engine Parts, Inc. v. Feddersen & Co. apply to tax advice that results in the preparation of deficient tax returns?
Disposition. reversed
Quotations verified verbatim against the opinion
“The statute began to run when Moss settled the tax deficiency with the FTB on May 19, 2015, which was the date when actual injury was determined”
“The deficiency assessment serves as a finalization of the audit process and the commencement of actual injury”