{ "id": 5769325, "name": "FEDERATED INDUSTRIES, INC., et al., Plaintiffs-Appellants, v. RICHARD A. REISIN et al., Defendants-Appellees", "name_abbreviation": "Federated Industries, Inc. v. Reisin", "decision_date": "2010-03-31", "docket_number": "No. 1\u201409\u20141487", "first_page": "23", "last_page": "37", "citations": [ { "type": "official", "cite": "402 Ill. App. 3d 23" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "26 U.S.C. \u00a76501", "category": "laws:leg_statute", "reporter": "U.S.C.", "weight": 2, "year": 1982, "pin_cites": [ { "page": "(a)" }, { "page": "(c)(4)" } ], "opinion_index": 0 }, { "cite": "768 P.2d 554", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10393438 ], "weight": 5, "year": 1989, "pin_cites": [ { "page": "557" }, { "page": "557" }, { "page": "557" }, { "page": "558" }, { "page": "557-58" } ], "opinion_index": 0, "case_paths": [ "/p2d/768/0554-01" ] }, { "cite": "815 P.2d 1231", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10381275 ], "year": 1991, "opinion_index": 0, "case_paths": [ "/p2d/815/1231-01" ] }, { "cite": "316 S.E.2d 657", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1984, "opinion_index": 0 }, { "cite": "69 N.C. App. 64", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8525747 ], "year": 1984, "opinion_index": 0, "case_paths": [ "/nc-app/69/0064-01" ] }, { "cite": "591 N.Y.2d 936", "category": "reporters:state", "reporter": "N.Y.2d", "year": 1992, "opinion_index": 0 }, { "cite": "417 S.W.2d 150", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10126901 ], "year": 1967, "opinion_index": 0, "case_paths": [ "/sw2d/417/0150-01" ] }, { "cite": "538 N.E.2d 1089", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1988, "opinion_index": 0 }, { "cite": "43 Ohio App. 3d 4", "category": "reporters:state", "reporter": "Ohio App. 3d", "case_ids": [ 6712627 ], "year": 1988, "opinion_index": 0, "case_paths": [ "/ohio-app-3d/43/0004-01" ] }, { "cite": "86 N.M. 707", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2823569 ], "weight": 2, "year": 1974, "opinion_index": 0, "case_paths": [ "/nm/86/0707-01" ] }, { "cite": "109 Idaho 174", "category": "reporters:state", "reporter": "Idaho", "case_ids": [ 4453316 ], "weight": 2, "year": 1985, "opinion_index": 0, "case_paths": [ "/idaho/109/0174-01" ] }, { "cite": "289 A.2d 1", "category": "reporters:state_regional", "reporter": "A.2d", "year": 1972, "opinion_index": 0 }, { "cite": "265 Md. 219", "category": "reporters:state", "reporter": "Md.", "case_ids": [ 1899537 ], "year": 1972, "opinion_index": 0, "case_paths": [ "/md/265/0219-01" ] }, { "cite": "257 A.2d 421", "category": "reporters:state_regional", "reporter": "A.2d", "year": 1969, "opinion_index": 0 }, { "cite": "255 Md. 288", "category": "reporters:state", "reporter": "Md.", "case_ids": [ 1924139 ], "year": 1969, "opinion_index": 0, "case_paths": [ "/md/255/0288-01" ] }, { "cite": "68 P.2d 1090", "category": "reporters:state_regional", "reporter": "P.2d", "year": 1989, "opinion_index": 0 }, { "cite": "2001 UT 90", "category": "reporters:neutral", "reporter": "UT", "case_ids": [ 9458493 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/p3d/34/0209-01" ] }, { "cite": "198 Ariz. 173", "category": "reporters:state", "reporter": "Ariz.", "case_ids": [ 274435 ], "weight": 2, "year": 2000, "pin_cites": [ { "parenthetical": "adopting the Feddersen rule in context of a sales tax deficiency assessment" }, { "parenthetical": "adopting the Feddersen rule in context of a sales tax deficiency assessment" } ], "opinion_index": 0, "case_paths": [ "/ariz/198/0173-01" ] }, { "cite": "604 N.Y.S.2d 721", "category": "reporters:state", "reporter": "N.Y.S.2d", "case_ids": [ 1148523, 1148871 ], "weight": 2, "year": 1993, "opinion_index": 0, "case_paths": [ "/ad2d/198/0033-01", "/ad2d/198/0001-01" ] }, { "cite": "198 A.D.2d 1", "category": "reporters:state", "reporter": "A.D.2d", "case_ids": [ 1148871 ], "weight": 2, "year": 1993, "opinion_index": 0, "case_paths": [ "/ad2d/198/0001-01" ] }, { "cite": "156 Misc. 2d 865", "category": "reporters:state", "reporter": "Misc. 2d", "case_ids": [ 910162 ], "weight": 3, "year": 1992, "pin_cites": [ { "page": "872" }, { "page": "941" } ], "opinion_index": 0, "case_paths": [ "/misc2d/156/0865-01" ] }, { "cite": "66 Cal. Rptr. 3d 517", "category": "reporters:state", "reporter": "Cal. Rptr. 3d", "year": 2007, "pin_cites": [ { "page": "528" } ], "opinion_index": 0 }, { "cite": "155 Cal. App. 4th 704", "category": "reporters:state", "reporter": "Cal. App. 4th", "case_ids": [ 3651710 ], "year": 2007, "pin_cites": [ { "page": "717" } ], "opinion_index": 0, "case_paths": [ "/cal-app-4th/155/0704-01" ] }, { "cite": "84 N.Y.2d 535", "category": "reporters:state", "reporter": "N.Y.2d", "case_ids": [ 4432505 ], "weight": 3, "year": 1994, "pin_cites": [ { "parenthetical": "accountant malpractice action accrues upon client's receipt of accountant's skill and advice" }, { "parenthetical": "accountant malpractice action accrues upon client's receipt of accountant's skill and advice" }, { "parenthetical": "accountant malpractice action accrues upon client's receipt of accountant's skill and advice" } ], "opinion_index": 0, "case_paths": [ "/ny-2d/84/0535-01" ] }, { "cite": "686 S.W.2d 1", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 9958300 ], "year": 1984, "pin_cites": [ { "parenthetical": "the court held that the statute began to run upon issuance of the examining agent's notice of a proposed deficiency even though specific amount of taxes owed had not been determined" } ], "opinion_index": 0, "case_paths": [ "/sw2d/686/0001-01" ] }, { "cite": "330 A.2d 130", "category": "reporters:state_regional", "reporter": "A.2d", "case_ids": [ 12023320 ], "year": 1974, "pin_cites": [ { "parenthetical": "applying the discovery rule, the court held that the statute began to run upon receipt of the first notice of an alleged deficiency from the IRS, not when the taxpayer received a final determination of tax liability" } ], "opinion_index": 0, "case_paths": [ "/a2d/330/0130-01" ] }, { "cite": "38 Cal. Rptr. 2d 150", "category": "reporters:state", "reporter": "Cal. Rptr. 2d", "weight": 15, "year": 1995, "pin_cites": [ { "page": "153-54" }, { "page": "151" }, { "page": "151" }, { "page": "152" }, { "page": "152" }, { "page": "152" }, { "page": "152" }, { "page": "152" }, { "page": "152" }, { "page": "156" }, { "page": "158" }, { "page": "158" }, { "page": "158" }, { "page": "158" } ], "opinion_index": 0 }, { "cite": "888 P2d 1279", "category": "reporters:state_regional", "reporter": "P.2d", "weight": 15, "year": 1995, "pin_cites": [ { "page": "1282-83" }, { "page": "1280" }, { "page": "1280" }, { "page": "1281" }, { "page": "1281" }, { "page": "1281" }, { "page": "1281" }, { "page": "1282" }, { "page": "1281" }, { "page": "1285" }, { "page": "1287" }, { "page": "1287" }, { "page": "1287" }, { "page": "1287" } ], "opinion_index": 0 }, { "cite": "9 Cal. 4th 606", "category": "reporters:state", "reporter": "Cal. 4th", "case_ids": [ 1989423 ], "weight": 15, "year": 1995, "pin_cites": [ { "page": "612-13" }, { "page": "609" }, { "page": "609" }, { "page": "609-10" }, { "page": "610" }, { "page": "610" }, { "page": "610" }, { "page": "611" }, { "page": "611" }, { "page": "617" }, { "page": "620" }, { "page": "620" }, { "page": "620" }, { "page": "620" } ], "opinion_index": 0, "case_paths": [ "/cal-4th/9/0606-01" ] }, { "cite": "167 Ill. 2d 353", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 222781 ], "weight": 4, "year": 1995, "pin_cites": [ { "page": "364" }, { "page": "364" }, { "page": "364" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/167/0353-01" ] }, { "cite": "288 Ill. App. 3d 666", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 1596966 ], "weight": 6, "year": 1997, "pin_cites": [ { "page": "673" }, { "page": "672" }, { "page": "669" }, { "page": "674" }, { "page": "677" }, { "page": "677" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/288/0666-01" ] }, { "cite": "364 Ill. App. 3d 6", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 4263139 ], "weight": 15, "year": 2006, "pin_cites": [ { "page": "22" }, { "page": "22" }, { "page": "22" }, { "page": "22" }, { "page": "8" }, { "page": "8" }, { "page": "9" }, { "page": "10" }, { "page": "10-11" }, { "page": "13-14, 22-23" }, { "page": "16" }, { "page": "17" }, { "page": "19, 23" }, { "page": "19, 23" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/364/0006-01" ] }, { "cite": "325 Ill. App. 3d 1139", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 570734 ], "year": 2001, "pin_cites": [ { "page": "1144" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/325/1139-01" ] } ], "analysis": { "cardinality": 1231, "char_count": 37146, "ocr_confidence": 0.775, "pagerank": { "raw": 8.672347310871529e-08, "percentile": 0.4921006977626881 }, "sha256": "cbc246cd1baef2fad462d2ee9c9e691d210ef1ebb417c75062c47b3a9865e938", "simhash": "1:1a38c6b1350054f4", "word_count": 5966 }, "last_updated": "2023-07-14T19:46:34.233681+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "FEDERATED INDUSTRIES, INC., et al, Plaintiffs-Appellants, v. RICHARD A. REISIN et al., Defendants-Appellees." ], "opinions": [ { "text": "JUSTICE QUINN\ndelivered the opinion of the court:\nPlaintiffs filed an accountant malpractice action against defendants, Richard A. Reisin and Ostrow, Reisin, Berk & Abrams, Ltd. (ORBA), alleging that defendants negligently provided accounting services, resulting in additional taxes and penalties to plaintiffs. The circuit court granted defendants\u2019 motion under section 2 \u2014 619(a)(5) of the Code of Civil Procedure to dismiss (735 ILCS 5/2- \u2014 -619(a)(5) (West 2008)), finding that plaintiffs\u2019 lawsuit had not been filed within the applicable statute of limitations period. Plaintiffs appeal from that dismissal order. For the following reasons, we affirm.\nI. BACKGROUND\nPlaintiff, Federated Industries, Inc. (Federated), is a holding company which, since 1990, was classified as an \u201cS-Corporation\u201d for federal tax purposes. The remaining plaintiffs (the Edelsteins) are the direct and beneficial owners of Federated\u2019s stock. Since Federated is a subchapter S corporation, Federated\u2019s income is treated as income to the shareholders for federal tax purposes.\nDefendants ORBA and its director, Richard A. Reisin, were hired by Federated to perform accounting and consulting services. Defendants prepared Federated\u2019s tax returns for calendar years 2002, 2003, and 2004. Defendants\u2019 responsibilities included aiding Federated in maintaining its tax status as a subchapter S corporation, including computation of Federated\u2019s \u201cpassive investment income,\u201d as defined by the Internal Revenue Code, for each year. If defendants determined that Federated\u2019s passive investment income was likely to exceed 25% of Federated\u2019s \u201cgross receipts\u201d for the taxable year and, therefore, subject Federated to taxation on its yearly income, defendants were responsible for advising Federated to shift its investments to investments yielding nonpassive investment income. Defendants were to advise Federated in this manner because Federated\u2019s status as a subchapter S corporation would be terminated if Federated\u2019s passive investment income exceeded 25% of its gross receipts for three consecutive taxable years.\nDefendants undercalculated Federated\u2019s passive investment income for three consecutive years (the 2002, 2003, and 2004 tax years) and did not advise Federated to shift investments so as to avoid passive investment income in excess of 25% of its gross receipts for each of these years. As a result, Federated\u2019s status as a subchapter S corporation was jeopardized where it had passive investment income in excess of 25% of its gross receipts for three consecutive taxable years.\nOn September 27, 2004, plaintiffs were notified by the Internal Revenue Service (IRS) that Federated\u2019s federal income tax return for the year 2002 had been selected for examination. On November 8, 2004, the IRS held its opening appointment with Federated and defendants at defendants\u2019 offices, relative to the examination of the year ending December 31, 2002. The purpose of the opening appointment was to discuss procedures concerning the IRS examination.\nOn February 28, 2005, the IRS issued a \u201cForm 4764 \u2014 Large Case Audit Plan,\u201d which expanded the scope of its audit to cover the 2003 tax year. On March 9, 2005, the IRS issued a document request upon Federated for general information with respect to the 2003 tax year. On the same date, the IRS also issued a document request upon Federated, seeking information for the 2002 and 2003 tax years on the calculation of Federated\u2019s net passive income tax. On March 21, 2005, the IRS issued another document request upon Federated, requesting calculations for Federated\u2019s net passive income tax for the years 2000 and 2001.\nOn or about April 19, 2005, the IRS provided its initial conclusions about the 2002 and 2003 calendar-year audits of Federated. One of the issues raised by the IRS at that time was that Federated\u2019s passive income test failed for calendar years 2002 and 2003 and also for a third consecutive tax year, which could result in Federated\u2019s subchapter S corporation election being involuntarily terminated. On May 26, 2005, the IRS issued a \u201cForm 4764 \u2014 Large Case Audit Plan,\u201d which confirmed several examination issues for the years 2002 and 2003, including passive income in excess of 25% of gross receipts and tax on that net passive income.\nOn July 15, 2005, Thomas Kosinski, a director at ORBA, authored a memorandum concerning the examination issues identified by the IRS in preparation for a meeting with plaintiffs\u2019 attorneys. Kosinski\u2019s memorandum included the IRS\u2019 conclusion that Federated\u2019s passive income was in excess of 25% of gross receipts for the tax years 2000, 2001, and 2002; and since the passive income test failed for three consecutive tax years, Federated\u2019s subchapter S corporation election should be terminated. The purpose of the meeting between defendants and plaintiffs\u2019 attorneys was to review the IRS examination issues and create a plan for future discussions with the IRS. The meeting took place on August 30, 2005, and the parties discussed the net passive income test and involuntary termination of Federated\u2019s subchapter S corporation election.\nOn September 15, 2005, the IRS issued \u201cForm 5701 \u2014 Notice of Proposed Adjustment\u201d with respect to its examination issues. In this document, the IRS concluded that Federated had passive investment income in excess of 25% of gross receipts for the taxable years 2000, 2001, and 2002. The IRS advised that Federated\u2019s subchapter S corporation status would be terminated, effective January 1, 2003, based upon the IRS\u2019 finding that Federated had passive investment income in excess of 25% of gross receipts for three consecutive taxable years.\nOn October 18, 2005, Federated\u2019s attorneys met with the IRS and Thomas Kosinski from ORBA. During the meeting, the IRS presented a settlement proposal for the purpose of closing the Federated audit and to avoid the termination of Federated\u2019s subchapter S corporation status. The settlement proposal and issues discussed during the meeting were communicated to plaintiffs on October 19, 2005. In an affidavit, Kosinski stated that, based on meetings with the IRS, he prepared \u201ca summary of proposed audit adjustments to provide to the [IRS] consistent with Federated Industries, Inc.\u2019s agreement to these adjustments.\u201d Kosinski attested, \u201cAs part of this process, the [IRS] requested the full agreement of all shareholders of Federated Industries, Inc. to consent to the proposed adjustments for calendar years 2002 and 2003.\u201d Kosinski further attested that \u201che prepared a letter to the [IRS] dated December 27, 2005, which set forth the summary of these audit adjustments.\u201d\nPursuant to this letter, dated December 27, 2005, \u201cFederated and its shareholders *** unanimously consented\u201d to the IRS\u2019 proposed audit adjustments, including accepting a passive income tax for calendar year 2002 in exchange for the subchapter S corporation election not to be terminated for that year. Federated also elected to distribute its remaining earnings and profits with respect to calendar year 2003 ($60,887,937) in exchange for Federated\u2019s subchapter S corporation election not being terminated after the 2003 tax year. Federated also acknowledged that the IRS could perform a \u201climited scope\u201d examination of Federated\u2019s 2004 tax return, limited to the issues raised in the 2002 and 2003 examinations.\nOn April 25, 2006, the IRS issued a letter to Federated enclosing its examination report and the proposed adjustments to Federated\u2019s federal income tax for calendar years 2002 and 2003. The IRS indicated that it would send separate examination reports to each partner, shareholder, beneficiary, or grantor of Federated. In this letter, the IRS requested that, \u201cIf our findings are acceptable, please sign and return the enclosed acceptance form.\u201d\nOn May 17, 2006, Federated\u2019s representatives returned to the IRS the acceptance of the adjustments proposed in the IRS\u2019 examination report. Federated also issued a check, dated May 12, 2006, to the United States Treasury in the amount of $140,816 in payment of the excess net passive income tax for the 2002 taxable year in the amount of $119,349, and interest in the amount of $21,467.\nOn May 15, 2008, plaintiffs filed a two-count complaint, which was subsequently amended. Count I alleged accountant malpractice and count II alleged breach of an unwritten contract. Both counts were premised on defendants\u2019 alleged miscalculation of Federated\u2019s passive investment income for the years 2002, 2003, and 2004. Plaintiffs alleged that as a result of defendants\u2019 miscalculation, plaintiffs were required to pay a total in excess of $14 million in additional taxes, interest and penalties.\nDefendants filed a motion to dismiss plaintiffs\u2019 complaint pursuant to section 2 \u2014 619(a)(5) (735 ILCS 5/2 \u2014 619(a)(5) (West 2008)), asserting that plaintiffs\u2019 complaint was filed beyond the applicable statute of limitations for accounting malpractice actions (735 ILCS 5/13 \u2014 214.2(a) (West 2008)). On December 16, 2008, the circuit court entered an order denying defendants\u2019 motion to dismiss and defendants filed a motion to reconsider. On May 11, 2009, the circuit court entered an order granting defendants\u2019 motion to reconsider and dismissing plaintiffs\u2019 complaint based on the court\u2019s finding that plaintiffs\u2019 lawsuit had not been filed within the two-year accounting malpractice statute of limitations period. Plaintiffs now appeal.\nII. ANALYSIS\nOn appeal, plaintiffs contend that the circuit court erred when it held that the statute of limitations relating to accounting malpractice had run on plaintiffs\u2019 claim against defendants. Plaintiffs contend that the two-year statute of limitations did not begin to run until plaintiffs sustained damages which, according to plaintiffs, occurred on May 17, 2006, when Federated executed a formal written acceptance of the IRS\u2019 proposed adjustments.\nA. Standard of Review\nA section 2 \u2014 619 motion to dismiss \u201cadmits the legal sufficiency of the complaint and raises defects, defenses or other affirmative matters, such as the untimeliness of the complaint, which appear on the face of the complaint or are established by external submissions which act to defeat the plaintiffs claim, thus enabling the court to dismiss the complaint after considering issues of law or easily proved issues of fact.\u201d Lipinski v. Martin J. Kelly Oldsmobile, Inc., 325 Ill. App. 3d 1139, 1144 (2001). Defendants have the burden of proving the affirmative defense relied upon in a section 2 \u2014 619 motion, and such a motion should only be granted if the record establishes that no genuine issue of material fact exists. MC Baldwin Financial Co. v. DiMaggio, Rosario & Veraja, LLC, 364 Ill. App. 3d 6, 22 (2006). The fact that a complaint is filed after the running of the applicable statute of limitations is a valid reason for dismissal pursuant to section 2 \u2014 619(a)(5). MC Baldwin, 364 Ill. App. 3d at 22. Our review of a section 2 \u2014 619 dismissal is de novo. MC Baldwin, 364 Ill. App. 3d at 22.\nB. Section 13 \u2014 214.2(a) of the Code and Applicable Illinois Law\nThe statute of limitations applicable to this case is codified in section 13 \u2014 214.2 of the Code of Civil Procedure (Code):\n\u201c(a) Actions based upon tort, contract or otherwise against any person, partnership or corporation registered pursuant to the Illinois Public Accounting Act, as amended, or any of its employees, partners, members, officers or shareholders, for an act or omission in the performance of professional services shall be commenced within 2 years from the time the person bringing an action knew or should reasonably have known of such act or omission.\n(b) In no event shall such action be brought more than 5 years after the date on which occurred the act or omission alleged in such action to have been the cause of the injury to the person bringing such action against a public accountant. Provided, however, that in the event that an income tax assessment is made or criminal prosecution is brought against a person, that person may bring an action against the public accountant who prepared the tax return within two years from the date of the assessment or conclusion of the prosecution.\u201d 735 ILCS 5/13 \u2014 214.2(a), (b) (West 2008).\nUnder Illinois law, the \u201cdiscovery rule\u201d governs statutes of limitations, such as section 13 \u2014 214.2(a). Dancor International, Ltd. v. Friedman, Goldberg & Mintz, 288 Ill. App. 3d 666, 673 (1997). The effect of the discovery rule is to \u201cdelay[ ] commencement of the statute of limitations until the plaintiff knows or reasonably should have known of the injury and that it may have been wrongfully caused.\u201d Dancor, 288 Ill. App. 3d at 672.\nIn this case, this court must determine the question, novel to this jurisdiction, of when taxpayers, whose tax returns have been challenged by the IRS, know or have reason to know that they have a cause of action against their accountants.\nPlaintiffs argue that the circuit court erred in finding that the statute of limitations began to run prior to May 17, 2006, when plaintiffs returned their acceptance of the proposed tax adjustments to the IRS. Plaintiffs note that the trial court held that \u201cPlaintiffs knew or reasonably should have known *** that both an injury has occurred and that the injury was caused by defendants prior to May 2006.\u201d Plaintiffs assert that this language mimics section 13 \u2014 214.2(a)\u2019s discovery rule, by which the limitations period begins to run at \u201cthe time the person bringing an action knew or should reasonably have known of such act or omission\u201d in the performance of professional services that are the basis for the action against an accountant. 735 ILCS 5/13 \u2014 214.2(a) (West 2008). Plaintiffs argue that, pursuant to the holding in MC Baldwin, the discovery rule has no application because where a plaintiff has no damages, as plaintiffs allege here, \u201cthe discovery rule is irrelevant because there is nothing to discover.\u201d MC Baldwin, 364 Ill. App. 3d at 22.\nDefendants respond that plaintiffs\u2019 claims were time-barred where the statute of limitations began to run in December 2005, when plaintiffs unanimously consented to the IRS\u2019 proposed tax adjustments and, therefore, were aware of their injury. Defendants assert that this court\u2019s determination in MC Baldwin, 364 Ill. App. 3d 6, supports their position rather than that of plaintiffs.\nIn MC Baldwin, plaintiff hired defendant DiMaggio in May of 2000 to perform certain accounting services in relation to plaintiffs agreements with its client, the CDC companies. In October of 2000, DiMaggio withdrew from its accounting work and plaintiff hired Coglianese in November of 2000, to complete the same accounting services. MC Baldwin, 364 Ill. App. 3d at 8. Coglianese resigned from its accounting work for plaintiff in January of 2001. MC Baldwin, 364 Ill. App. 3d at 8. Plaintiff subsequently lost its client, the CDC companies, on April 20, 2001, when the CDC companies claimed that plaintiff had failed to provide certain accounting reports required by CDC. MC Baldwin, 364 Ill. App. 3d at 9.\nOn April 18, 2003, plaintiff filed a lawsuit against DiMaggio and Coglianese alleging that their breaches of contract and professional negligence caused $2,500,000 in damages when the CDC companies terminated their contracts with plaintiff. MC Baldwin, 364 Ill. App. 3d at 10. DiMaggio filed a motion for summary judgment and Coglianese filed a motion to dismiss pursuant to section 2 \u2014 619(a)(5) of the Code, both arguing that plaintiff\u2019s claims were barred by the accounting malpractice statute of limitations because any breach of contract or professional negligence would have occurred when DiMaggio and Coglianese, respectively, withdrew from their agreement with plaintiff, which was more than two years before plaintiff filed its complaint. MC Baldwin, 364 Ill. App. 3d at 10-11. The trial court ultimately entered judgment in favor of defendants and plaintiff appealed.\nOn appeal, DiMaggio and Coglianese argued that the limitations period on any claim plaintiff had against them would have begun on the date of the defendants\u2019 respective withdrawals from their agreement with plaintiff, because as of those dates plaintiff had a right to recover the fees it paid for work that DiMaggio and Coglianese had not completed. MC Baldwin, 364 Ill. App. 3d at 13-14, 22-23. Plaintiff maintained that it sustained no damages until its loss of the CDC companies and that defendants\u2019 contentions to the contrary were laden with questions of fact. Plaintiff alternatively argued that even if a cause of action for the return of fees did accrue when defendants withdrew from their agreements and expired before plaintiff filed suit, the damages resulting from the loss of the CDC companies were part of a wholly separate cause of action with a distinct limitations period running from April 2001 to April 2003. MC Baldwin, 364 Ill. App. 3d at 16.\nIn MC Baldwin, this court examined its previous determination in Dancor and that of our supreme court in Golla v. General Motors Corp., 167 Ill. 2d 353 (1995). In Dancor, the plaintiff brought a malpractice action against a certified public accounting firm alleging that the firm failed to detect warehouse fraud and embezzlement committed by Dancor\u2019s director and office manager. Dancor had also filed a 35-page RICO lawsuit in federal court against its director, which alleged 226 specific fraudulent acts by its director. Dancor, 288 Ill. App. 3d at 669. This court held that a professional opinion from Dancor\u2019s new accountants was not required to start the limitations period running, since the plaintiff had enough information without a professional opinion to file the 35-page federal RICO complaint alleging fraud and embezzlement by its director. Dancor, 288 Ill. App. 3d at 674. This court further noted, \u201cThe mere fact that the extent of injury is not immediately known or ascertainable does not postpone the triggering of the statute of limitations.\u201d Dancor, 288 Ill. App. 3d at 677, citing Golla, 167 Ill. 2d at 364.\nIn Golla, the plaintiff brought a products liability action against the manufacturer of her automobile almost four years after she had been injured in an automobile collision. The defendant moved to dismiss, asserting that the plaintiffs action was barred under the applicable two-year statute of limitations period. The plaintiff, relying on the discovery rule, argued that, although she was aware of her initial injury at the time of the collision, she was unaware of the ultimate extent of her damages, i.e., a latent injury that manifested itself thereafter. Our supreme court rejected plaintiffs argument and found that her action was time-barred. The court explained:\n\u201cThis court has never suggested that plaintiffs must know the full extent of their injuries before the statute of limitations is triggered. Rather, our cases adhere to the general rule that the limitations period commences when the plaintiff is injured, rather than when the plaintiff realizes the consequences of the injury or the full extent of her injuries.\u201d Golla, 167 Ill. 2d at 364.\nIn MC Baldwin, this court explained, \u201cGolla and Dancor generally stand for the proposition that existence of some injury starts the running of the limitations period on any claim arising out of the same events even though the injury may further develop or additional injuries may result from the same breach of duty.\u201d MC Baldwin, 364 Ill. App. 3d at 17. In MC Baldwin, this court did not resolve the issue of whether a claim for restitution against DiMaggio and Coglianese would have triggered the limitations period for plaintiff\u2019s claim for damages relating to the loss of its client. Rather, this court determined that a question of fact existed as to whether plaintiff sustained an injury that would have entitled it to an action for restitution at the time when DiMaggio and Coglianese each withdrew from their agreement with plaintiff. MC Baldwin, 364 Ill. App. 3d at 19, 23. As a result, this court held that this issue of material fact precluded summary judgment and dismissal on statute of limitations grounds. MC Baldwin, 364 Ill. App. 3d at 19, 23.\nDefendants argue that pursuant to MC Baldwin, Dancor, and Golla, the plaintiffs were aware of some injury when they consented to the IRS\u2019 proposed tax adjustments in December 2005 and, therefore, the running of the limitations period began at that time. Defendants also assert that even if the amount of plaintiffs\u2019 injury, i.e., tax liability, was not immediately known, this fact would not delay the running of the limitations period.\nDefendants further note that the language of the accounting malpractice statute of limitations, unlike the legal malpractice statute of limitations (735 ILCS 5/13 \u2014 214.3(b) (West 2008)), does not provide that a cause of action accrues at the time plaintiffs knew or should reasonably have known of an \u201cinjury\u201d for which damages are sought. Accordingly, defendants maintain that the limitations period on any claim plaintiffs had against them would have begun when plaintiffs knew of their accountants\u2019 miscalculations.\nPlaintiffs respond that this court should find that the statute of limitations begins to run at the time a taxpayer receives the statutory notice of tax deficiency or, in the alternative, as in this case, at the equivalent time a taxpayer registers agreement with the IRS. Plaintiffs maintain that defendants\u2019 argument incorrectly attempts to distinguish accounting malpractice from legal malpractice claims.\nSome courts in other jurisdictions have held, as plaintiffs contend, that the statute of limitations does not begin to run until the issuance of the statutory notice of deficiency, a formal notice of deficiency issued by the IRS at a later point in the deficiency procedure. See International Engine Parts, Inc. v. Feddersen & Co., 9 Cal. 4th 606, 888 P2d 1279, 38 Cal. Rptr. 2d 150 (1995). Other courts have held that the statute of limitations starts to run upon indication from the IRS of a disagreement with the taxpayer\u2019s return. See Isaacson, Stolper & Co. v. Artisan\u2019s Savings Bank, 330 A.2d 130 (Del. 1974) (applying the discovery rule, the court held that the statute began to run upon receipt of the first notice of an alleged deficiency from the IRS, not when the taxpayer received a final determination of tax liability); see also Brower v. Davidson, Deckert, Schutter & Glassman, P.C., 686 S.W.2d 1 (Mo. App. 1984) (the court held that the statute began to run upon issuance of the examining agent\u2019s notice of a proposed deficiency even though specific amount of taxes owed had not been determined); Ackerman v. Price Waterhouse, 84 N.Y.2d 535, 644 N.E.2d 1009, 620 N.Y.S.2d 318 (1994) (accountant malpractice action accrues upon client\u2019s receipt of accountant\u2019s skill and advice).\nC. IRS Audit Procedure\nIn determining which of the two approaches indicated by the above cases is preferable, a brief overview of IRS procedures for examination of tax returns and assessment of deficiencies is helpful. In Feddersen, the Supreme Court of California provided such an overview of the procedures employed by the IRS. We quote from that opinion here at length:\n\u201cOnce a federal tax return is selected for audit, the examination is performed by an IRS examiner. At the conclusion of the examination, the taxpayer is sent a report of the examiner\u2019s findings, indicating any proposed deficiency assessments. If the taxpayer agrees with the findings of the examiner, he or she will sign the appropriate forms (form No. 4549 and/or form No. 870) acknowledging the tax liability. [Citation.] If the taxpayer signs the agreement form, he or she immediately (1) waives the required statutory notice of deficiency pursuant to Internal Revenue Code section 6212 (the 90-day letter), (2) waives the corresponding prohibition on collection for 90 days under Internal Revenue Code section 6213, and (3) is thereafter precluded from litigating the proposed deficiency in tax court. [Citations.] If the taxpayer does not agree with the examiner\u2019s proposed findings, the findings will be reviewed in the district office, and the taxpayer will be sent a \u201830-day letter\u2019 instructing that the taxpayer has 30 days to file a protest. [Citation.] \u2018If the taxpayer fails to respond within the thirty days, a notice of deficiency will be issued. [Citation.] If the taxpayer timely files a protest, he [or she] will be accorded an appeals office conference ***. If a settlement is reached, the taxpayer will again be requested to sign the agreement form ***. A determination by the appeals office, however, is final insofar as the taxpayer\u2019s appeal rights within the IRS [are concerned], and if the taxpayer continues to disagree, the statutory notice of deficiency will be sent giving the taxpayer ninety days to file a petition in the Tax Court before collection actions are begun.\u2019 [Citation.]\nThus, the preliminary findings of the tax examiner are proposed findings that are subject to negotiation prior to any determination of tax deficiency. [Citation.] Once a deficiency is assessed, however, either by the taxpayer\u2019s consent to deficiency assessment, or by receipt of a final deficiency notice pursuant to Internal Revenue Code section 6212 et seq., the matter is final as to the IRS and subject to legal appeal in federal tax court. [Citation.]\u201d (Emphasis in original.) Feddersen, 9 Cal. 4th at 612-13, 888 P.2d at 1282-83, 38 Cal. Rptr. 2d at 153-54.\nIn the present case, on December 27, 2005, plaintiffs unanimously consented to the IRS\u2019 proposed tax adjustments. On April 25, 2006, the IRS issued a letter to plaintiffs enclosing its examination report and the proposed adjustments to Federated\u2019s federal income tax for calendar years 2002 and 2003. In this letter, the IRS requested that plaintiffs sign the enclosed acceptance form. On May 17, 2006, Federated\u2019s representatives returned to the IRS the acceptance of the adjustments proposed in the IRS\u2019 examination report and issued a check in payment of Federated\u2019s excess net passive income tax and interest. Issuance of a statutory notice of deficiency was therefore not required. Against this background, we consider the issue raised by the parties.\nD. Feddersen Analysis\nMany of the facts in Feddersen parallel those presented in the present case. In Feddersen, the clients (parent and subsidiary corporations) sued their accountants for negligence in connection with the preparation of tax returns that were subsequently audited by the IRS. The tax issue concerned whether the subsidiary was qualified for certain tax benefits associated with being a domestic international stock corporation (DISC). Feddersen, 9 Cal. 4th at 609, 888 P.2d at 1280, 38 Cal. Rptr. 2d at 151. The subsidiary\u2019s president was advised by an IRS agent in 1986, two years into the IRS audit of the company\u2019s tax returns, that the company would be disqualified as a DISC because the accountants had failed to provide essential documentation. Feddersen, 9 Cal. 4th at 609, 888 P.2d at 1280, 38 Cal. Rptr. 2d at 151. Faced with the prospect of additional tax liability in July 1986, the subsidiary withdrew a settlement offer it had made in unrelated litigation. Feddersen, 9 Cal. 4th at 609-10, 888 P.2d at 1281, 38 Cal. Rptr. 2d at 152. At the same time, the company\u2019s bank decreased its line of credit because of the potential additional tax liability. Feddersen, 9 Cal. 4th at 610, 888 P.2d at 1281, 38 Cal. Rptr. 2d at 152. The IRS issued a preliminary audit report in June 1987, stating that it planned to disqualify the subsidiary as a DISC and impose tax deficiencies, interest, and penalties. Feddersen, 9 Cal. 4th at 610, 888 P.2d at 1281, 38 Cal. Rptr. 2d at 152. The IRS assessed the tax deficiency on May 16, 1988, and the plaintiffs filed suit against their accountants on May 15, 1990.\nThe defendants in Feddersen moved for summary judgment, arguing that the two-year statute of limitations ran in 1988 because it commenced in July 1986, when the subsidiary sustained actual injury by being forced to withdraw its settlement offer in the unrelated litigation and by having its line of credit reduced. The defendants further argued that the plaintiffs\u2019 payment of attorney fees in connection with the audit constituted actual injury for statute of limitation purposes. Feddersen, 9 Cal. 4th at 610, 888 P.2d at 1281, 38 Cal. Rptr. 2d at 152. The plaintiffs argued that their suit was timely filed because it was within two years after the IRS assessed the deficiency. Feddersen, 9 Cal. 4th at 611, 888 P.2d at 1282, 38 Cal. Rptr. 2d at 152. The trial court granted the defendants\u2019 motion and the appellate court affirmed. Feddersen, 9 Cal. 4th at 611, 888 P.2d at 1281, 38 Cal. Rptr. 2d at 152.\nThe Supreme Court of California reversed. \u201cIt created a special bright-line rule for accounting malpractice for the negligent preparation of tax returns that are subsequently audited by taxing authorities. The court held that the date in which the IRS makes a final determination of a tax deficiency serves by operation of law as the date of accrual of the statute of limitations in such cases, noting: \u2018The deficiency assessment serves as a finalization of the audit process and the commencement of actual injury because it is the trigger that allows the IRS to collect amounts due and the point at which the accountant\u2019s alleged negligence has caused harm to the taxpayer.\u2019 \u201d (Emphasis in original.) Sahadi v. Scheaffer, 155 Cal. App. 4th 704, 717, 66 Cal. Rptr. 3d 517, 528 (2007), quoting Feddersen, 9 Cal. 4th at 617, 888 P.2d at 1285, 38 Cal. Rptr. 2d at 156. Thus, the Feddersen court held that the plaintiffs\u2019 action was timely filed where the actual injury occurred when the IRS issued its penalty tax assessment on May 16, 1988. The court explained, \u201cAlthough [the defendants\u2019] alleged negligence may have been \u2018discovered\u2019 during the audit, such potential liability could not amount to actual harm until the date of the deficiency tax assessment or finality of the audit process.\u201d Feddersen, 9 Cal. 4th at 620, 888 P.2d at 1287, 38 Cal. Rptr. 2d at 158.\nThe Feddersen court reasoned that adopting this approach \u201cboth conserves judicial resources and avoids forcing the client to sue the allegedly negligent accountant for malpractice while the audit is pending.\u201d Feddersen, 9 Cal. 4th at 620, 888 P.2d at 1287, 38 Cal. Rptr. 2d at 158. The court further noted, \u201cIt also avoids requiring the client to allege facts in the negligence action that could be used against him or her in the audit, without first allowing the accountant to correct the error (or mitigate the consequences thereof) during the audit process.\u201d Feddersen, 9 Cal. 4th at 620, 888 P.2d at 1287, 38 Cal. Rptr. 2d at 158, citing Ackerman v. Price Waterhouse, 156 Misc. 2d 865, 872, 591 N.Y.S.2d 936, 941 (1992) (general rule that statute of limitations for accountant malpractice does not begin to run until a tax deficiency is assessed \u201cprotects federal tax preparers from the prejudice of needless litigation expense on suits which must later be abandoned because no damage ensued, after occasioning an entirely wasted investment of court resources\u201d), aff\u2019d, 198 A.D.2d 1, 604 N.Y.S.2d 721 (1993).\nCourts in other jurisdictions have agreed with the California Supreme Court\u2019s decision in Feddersen. See, e.g., CDT, Inc. v. Addison, Roberts & Ludwig, 198 Ariz. 173, 7 P.3d 979 (App. 2000) (adopting the Feddersen rule in context of a sales tax deficiency assessment); see also Clark v. Deloitte & Touche LLP, 2001 UT 90, 34 P.3d 209 (holding that the statute of limitations did not commence until tax court\u2019s decision upholding IRS\u2019 deficiency assessment became final and that while Feddersen\u2019s holding was sound it did not involve the taxpayer continuing to pursue remedies in tax court). A majority of other jurisdictions, preceding Feddersen, have also held that the statute of limitations for accounting malpractice involving the negligent preparation of tax returns commences when there is a formal assessment of a deficiency by the taxing authority. See Thomas v. Cleary, 68 P.2d 1090 (Alaska 1989); Feldman v. Granger, 255 Md. 288, 257 A.2d 421 (1969), aff\u2019d, Leonhart v. Atkinson, 265 Md. 219, 289 A.2d 1 (1972); Streib v. Veigel, 109 Idaho 174, 706 P.2d 63 (1985); Chisholm v. Scott, 86 N.M. 707, 526 P.2d 1300 (1974); Sladky v. Lomax, 43 Ohio App. 3d 4, 538 N.E.2d 1089 (1988); Atkins v. Crosland, 417 S.W.2d 150 (Tex. 1967); Ackerman v. Price Waterhouse, 156 Misc. 2d 865, 591 N.Y.2d 936 (1992), aff\u2019d, 198 A.D.2d 1, 604 N.Y.S.2d 721 (1993); Snipes v. Jackson, 69 N.C. App. 64, 316 S.E.2d 657 (1984); Wynn v. Estate of Holmes, 815 P.2d 1231 (Okla. App. 1991).\nIn Mills v. Garlow, 768 P.2d 554, 557 (Wyo. 1989), the Supreme Court of Wyoming held that the statute of limitations in an action against an accountant for advice allegedly causing increased tax liability began to run when the taxpayer received statutory notice of the tax deficiency or, in the alternative, when the taxpayer registered agreement with the IRS. The court noted that policy considerations supported this approach, including \u201cthe advantage of providing some certainty.\u201d Mills, 768 P.2d at 557. The court also stated that commencing the statute at this point would not abrogate the policy underlying the statute of limitations of preventing stale claims \u201cbecause, pursuant to 26 U.S.C. \u00a76501(a) (1982), the IRS must file any notice of deficiency and assess the deficiency within three years from the date the tax return was filed, unless both the taxpayer and the IRS consent in writing to extend the assessment period. 26 U.S.C. \u00a76501(c)(4) (1982).\u201d Mills, 768 P.2d at 557.\nThe Mills court further noted that it is better policy to discourage the filing of lawsuits until such time as the likelihood of accountant error is established by the IRS at some point beyond the initial examiner\u2019s preliminary conclusions. The court explained, \u201cWe anticipate that this approach would also comport with the response of the average taxpayer to an examiner\u2019s proposed adjustments. The first step by such a taxpayer, as in the instant case, is likely to be the contacting of the accountant for assistance in sorting out his tax difficulties with the IRS. This effort would be frustrated if the taxpayer was required to immediately file a lawsuit against the accountant.\u201d Mills, 768 P.2d at 558.\nThe courts in these jurisdictions concluded that the applicable statute of limitations for accounting malpractice is not triggered until a tax deficiency is assessed, or in the alternative, when the taxpayer registers his or her agreement with the IRS. We note that sound policy reasons support such an approach. These include creating a bright-line rule, judicial economy, and preservation of the accountant-client relationship. See Feddersen, 9 Cal. 4th at 620, 888 P.2d at 1287, 38 Cal. Rptr. 2d at 158; see also Mills, 768 P.2d at 557-58.\nIn a petition for rehearing, plaintiffs argue that the December 27, 2005, letter was never submitted to the IRS and that Kosinski\u2019s affidavit stated that he merely prepared a summary of the audit adjustments that \u201chad been discussed with the IRS.\u201d However, the record shows that based on settlement meetings with the IRS, Kosinski prepared \u201ca summary of proposed audit adjustments to provide to the [IRS] consistent with Federated Industries, Inc.\u2019s agreement to these adjustments.\u201d In the December 27, 2005, letter, plaintiffs \u201cunanimously consented\u201d to the IRS\u2019 proposed tax adjustments. Therefore, plaintiffs agreed to additional tax liability and knew of their injury at that time. The fact that the amount of plaintiffs\u2019 tax liability was not immediately ascertainable does not postpone the triggering of the statute of limitations. See Dancor, 288 Ill. App. 3d at 677, citing Golla, 167 Ill. 2d at 364.\nIII. CONCLUSION\nFor the above reasons, we adopt the approach outlined in Feddersen and the majority of other jurisdictions and hold that the statute of limitations in an accountant malpractice case involving increased tax liability begins to run when the taxpayer receives the statutory notice of deficiency pursuant to Internal Revenue Code section 6212, or at the time when the taxpayer agrees with the IRS\u2019 proposed deficiency assessments. Accordingly, we find that the two-year statute of limitations provided in section 13 \u2014 214.2(a) began to run on December 27, 2005, when plaintiffs registered their unanimous consent to the proposed tax adjustments with the IRS. Therefore, this suit, filed May 15, 2008, was time-barred by the statute and we affirm the circuit court\u2019s dismissal.\nAffirmed.\nSTEELE and COLEMAN, JJ., concur.", "type": "majority", "author": "JUSTICE QUINN" } ], "attorneys": [ "Neal, Gerber & Eisenberg, LLP, of Chicago (Stephen Fedo and Patrick Frye, of counsel), for appellants.", "Cassidy & Schade, LLR of Chicago (Julie A. Teuscher and Scott J. Brown, of counsel), for appellees." ], "corrections": "", "head_matter": "FEDERATED INDUSTRIES, INC., et al, Plaintiffs-Appellants, v. RICHARD A. REISIN et al., Defendants-Appellees.\nFirst District (3rd Division)\nNo. 1\u201409\u20141487\nOpinion filed March 31, 2010.\nRehearing denied April 30, 2010.\nModified opinion filed May 5, 2010.\nNeal, Gerber & Eisenberg, LLP, of Chicago (Stephen Fedo and Patrick Frye, of counsel), for appellants.\nCassidy & Schade, LLR of Chicago (Julie A. Teuscher and Scott J. Brown, of counsel), for appellees." }, "file_name": "0023-01", "first_page_order": 41, "last_page_order": 55 }