This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The Plaintiff, an accounting firm, provided bookkeeping and tax services to the Defendant, a medical practitioner and his corporation, for several years. The Defendant later discovered that the Plaintiff had failed to file tax returns for multiple years, despite being paid for these services. The Plaintiff sued the Defendant on an unpaid promissory note, and the Defendant counterclaimed for accountant malpractice, alleging financial harm due to the failure to file tax returns (paras 1, 4-7).
Procedural History
- District Court, Bernalillo County: The court ruled in favor of the Defendants, finding that their claims for accountant malpractice were timely under the four-year statute of limitations, as the injury was discovered upon receiving an IRS notice of tax deficiency (paras 2, 8).
Parties' Submissions
- Plaintiff-Appellant: Argued that the statute of limitations for the malpractice claim began to run when the Defendant knew or should have known that the tax returns had not been filed, which occurred before the IRS issued a notice of deficiency (paras 1, 3, 16-18).
- Defendants-Appellees: Contended that the statute of limitations did not begin until the IRS issued a notice of tax deficiency, as this was the point at which the injury became apparent (paras 11, 13).
Legal Issues
- When does the statute of limitations begin to run in an accountant malpractice case involving the failure to file tax returns?
- Is an IRS notice of deficiency required to establish the discovery of injury in such cases?
Disposition
- The Court of Appeals reversed the District Court's decision, holding that the statute of limitations began to run when the Defendant knew the tax returns had not been filed, not when the IRS issued a notice of deficiency (paras 3, 19-20).
Reasons
Per Kennedy J. (Alarid and Bustamante JJ. concurring):
The Court held that the statute of limitations for accountant malpractice begins when the client discovers or should have discovered the injury, not necessarily when an IRS notice of deficiency is issued. The Court emphasized that the Defendant knew as early as October 1995 that tax returns had not been filed, as evidenced by his hiring of a new accountant and acknowledgment of the issue. This knowledge constituted both the discovery of injury and the accrual of the cause of action. The Court rejected the argument that an IRS notice of deficiency is the sole trigger for the statute of limitations, particularly in cases where the injury is evident from the failure to file tax returns. Consequently, the Defendants' claims, filed in March 2000, were barred by the four-year statute of limitations (paras 3, 10-18).