RSS Feed LinkedIn Instagram Twitter Facebook
FMG Law Blog Line

Posts Tagged ‘taxes’

Continuing Fiduciary Relationship Does Not Always Toll the Statute of Limitations in California

Posted on: March 5th, 2018

By: Brett C. Safford

Image result for finance

In Choi v. Sagemark Consulting, 18 Cal. App. 5th 308 (2017) (“Choi”), plaintiffs, husband and wife, filed a lawsuit in November 2010 alleging that defendants, their former financial advisors, offered negligent and fraudulent financial planning advice with respect a complex investment program involving life insurance and annuities under former section 412(i) of the Internal Revenue Code (“IRC section 412(i) Plan”).  Audited by the IRS in 2006, Plaintiffs alleged that defendants misrepresented the IRC section 412(i) Plan’s promised benefits as well as its risk of adverse IRS action and tax consequences.  The audit concluded in 2009, and plaintiffs were subject to significant penalties and tax liabilities caused by the IRC section 412(i) Plan.

Defendants moved for summary judgment, arguing that plaintiffs’ causes of action were barred by the applicable statutes of limitation.  Defendants introduced two communications to show that plaintiffs were aware the IRS had identified defects in the IRC section 412(i) Plan as of November 2006, and IRS penalties and damages would be accruing as of September 2007. Trial court granted summary judgment, finding that plaintiffs were on notice of the IRS penalties as of September 2007, and therefore, the two-year and three-year statutes of limitations applicable to plaintiffs’ causes of action expired prior to filing of the complaint in November 2010.

The Court of Appeal affirmed, rejecting plaintiffs’ arguments that (1) the September 2007 e-mail only put plaintiffs on notice that damages might occur in the future, and (2) the fiduciary or confidential relationship between plaintiffs and defendants, as their financial advisors, tolled the statute of limitations.  Applying the general “discovery rule,” the court concluded that the plaintiffs discovered or should have discovered defendants’ negligent advice as of the September 2007 e-mail because that e-mail indicated “‘legally cognizable damage’ in the form of IRS penalties.” Choi, 18 Cal. App. 5th at 330.  Despite uncertainty as to the monetary amount of the penalties, “‘the existence of appreciable actual injury does not depend on the plaintiff’s ability to attribute a qualifiable sum of money to consequential damages.’” Id. at 331.  The court further held that tolling did not apply, even though the fiduciary relationship between plaintiffs and defendants continued while they collectively challenged the IRS assessment, because “[d]elayed accrual due to the fiduciary relationship does not extend beyond the bounds of the discovery rule.” Id. at 334.  Therefore, the court “decline[d] to apply the tolling principles to a scenario in which the defendants had disclosed the facts necessary to support’ the plaintiff’s cause of action.” Id.

The Court of Appeal’s analysis in Choi is significant in the professional liability context for two reasons.  First, the court reaffirmed that the general “discovery rule,” i.e., the statute of limitations period begins to run when a plaintiff discovers or should have discovered the cause of action, is the default rule for when causes of action accrue in professional liability cases.  The Court rejected plaintiffs’ attempt to apply a differing accrual rule applicable only to accounting malpractice actions arising from negligent preparation of tax returns.  The court explained, “It may be that actual injury results from an accountant’s allegedly negligent preparation of tax returns only as determined by an IRS audit, but the same cannot be said for more wide-ranging categories of negligent tax-related or investment advice.” Choi, 18 Cal. App. 5th at 328.

Second, and more importantly, the appellate court declined to toll the statute of limitations even though plaintiffs and defendants maintained a fiduciary relationship while challenging the audit.  California recognizes that certain cases involving a fiduciary obligation will toll the statute of limitations.  For example, the statute of limitations in a legal malpractice action is tolled while “[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” Cal. Civ. Proc. Code, § 340.6, subd. (a)(2).  However, in Choi, the court held that the discovery rule is not displaced by delayed accrual due to a fiduciary relationship—at least in the financial advisor-client context.  The court reasoned that Plaintiffs were on inquiry notice of the facts constituting their injury as of September 2007, and their continuing relationship with defendants “did not prevent or delay [them] from discovering the wrongdoing beyond September 2007.” Choi, 18 Cal. App. 5th at 335.

The Court of Appeal’s decision in Choi undermines the commonly asserted proposition that a continuing fiduciary relationship will toll the statute of limitations and reaffirms the importance of the “discovery rule.”  At least in professional liability cases involving financial advisors, plaintiffs cannot hide behind their fiduciary relationship with defendants to avoid a statute of limitations defense.  Rather, the central inquiry is when did plaintiffs discover their causes of action—regardless of whether the discovery occurred before or after the termination of the fiduciary relationship.  As such, the Choi decision provides valuable authority for professional liability defense attorneys, especially those representing financial advisors, in cases where the statute of limitations may offer a defense.

If you have any questions or would like more information, please contact Brett Safford at [email protected].

Changes to Property Tax Appeals in Georgia

Posted on: May 4th, 2015


By: M. Michelle Youngblood

Taxes.  For most Americans, that word immediately brings to mind the 15th of April and the payment of federal income taxes.  But as property owners in Georgia are well aware, there is another kind of that can have just as much impact on the bottom line – ad valorem property taxes, usually due in the fall of each year.  Surprisingly, though, not every owner is aware that property values, on which ad valorem taxes are based, can be appealed.

Since 2009, the Georgia Legislature has made changes to the appeal process almost every year, and 2015 is no exception.  Amendments in previous years have added the options of having an arbitrator or hearing officer hear the appeal, instead of the Board of Equalization.  The latest round of revisions provide taxpayers with additional rights, including:

  • The right to interview an officer or employee authorized to discuss tax assessments relating to the valuation of the taxpayer’s property within 30 days of a written request;
  • The right to record that interview (at the taxpayer’s expense);
  • The right to record proceedings before the Board of Equalization or hearing officer (at the taxpayer’s expense); and
  • The right to enforce the interview requirement in Superior Court, and to recover reasonable attorney’s fee and expenses of litigation resulting from that enforcement, plus damages of $100.00 per occurrence.

The amendment also allows the parties to skip over the Board of Equalization hearing, and take the appeal straight to Superior Court, if the taxpayer and Board of Tax Assessors agree to do so in writing.  In addition, the parties are required to attend a settlement conference within 45 days of the notice of appeal, and before it is certified to Superior Court.  There are stiff penalties for failing to attend the settlement conference.  If the Board of Tax Assessors refuses to attend, then the taxpayer’s stated value is deemed to be the fair market value for the tax year in question, and can not be increased for the two (2) years following.[1]  If the taxpayer does not attend, he is not allowed to seek or be awarded attorney’s fees or costs of litigation in Superior Court.

Another change is a reduction in the cost to take a tax appeal to Superior Court.  Previously, the filing fee was the same charged by the Superior Court for any other civil action.[2]  Once the latest amendment takes effect, the filing fee is reduced to $25.00.

The changes enacted in the most recent amendments take effect on July 1, 2015.[3]  The entire text of House Bill 202 can be found at

[1] Except in certain specific circumstances specified in the statute.

[2] Which varies slightly from one county to another, pursuant to statute.

[3] Other changes contained on the same law do not become effective until January 1, 2016.

Dangers of Hiring Independent Contractors

Posted on: July 22nd, 2013

By: Leanne Prybylski


iStock_000001819345SmallMany contractors hire independent contractors, rather than employees, to avoid paying taxes and benefits.  Contractors should be aware, however, that the costs of misclassifying employees as an independent contractors could end up being more expensive than it would have been to pay the taxes and benefits for the employees in the first place.  For more information, see the recent article by Leanne Prybylski, “The Dangers of Hiring Independent Contractors.”