Court summarily dismisses accounting malpractice case, holding consultation regarding audit does not extend statute of limitations

JGM Transportation sued Lewis & Knopf CPAs after it got hit with auditing fees and penalties.  It had "engaged" the CPAs to prepare its 2008 income tax returns, which did not get filed until September of 2009.  Soon after, JGM hired a new accountant, who found errors in the 2008 return while preparing the 2009 returns and predicted the company would be audited.  Sure enough, in 2010 or 2011 JGM was notified of an IRS audit (the evidence was disputed, apparently, on when the notification occurred) that ultimately resulted in penalties, interest and additional taxes and costs.

It was uncontested that in April of 2011, the accountants received notice of the audit and discussed it with JGM's principal owner.   The owner testified that the accountants admitted an error in the 2008 return and at that point the owner concluded that he would retain his new accountants to assist him in the audit.  He then sued the accountants in March of 2012, but the accountants argued that the statute of limitations had run before he JGM filed suit.

The normal statute of limitations would be two years from the accountant's engagement or from the end of the relationship, and a prior decision had suggested that accountants who work for a party annually over a period of years would remain liable for their work for two years after the engagement ended.  The trial judge cited language in the accountants' engagement letter in holding that preparation of the 2008 returns was a "discrete" transaction that ended with the filing of the return. On that basis the trial judge granted the accountants summary disposition.

The Court of Appeals agreed with this outcome.  The judges held that by the terms of the accountants' letter of engagement, they had limited their exposure to two years from the date the taxes were filed, and that the conversation with the client with regard to the impending audit was an "administrative or ministerial task insufficient to extend an accrual date."