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Wynn v. Estate of Holmes8/20/1991
AFFIRMED.
The opinion of the court was delivered by: BRIGHTMIRE, Judge.
In this malpractice action against the estate of a deceased accountant, the plaintiffs seek recovery of interest assessed by the Internal Revenue Service on the delinquent payment of income taxes as a result of the accountant's error in preparing their federal income tax return.
The trial court held that the plaintiffs' action was not barred by the statute of limitations and, among other things, awarded them judgment for the interest penalty.
The defending estate appeals. We affirm.
I
The plaintiffs, Glenn and Eddie Wynn, had employed accountant Dick Holmes for a number of years to prepare both their corporate and personal income tax returns. On the Wynns' 1979 joint federal income tax return, Holmes claimed a $148,146 loss on some small business stock owned by the Wynns in Aero Video, Inc.
In 1981, the Wynns were notified by the IRS that their 1979 return would be audited. Holmes was informed of this unwelcome development and obtained a power of attorney for the purpose of representing the Wynns during the audit process.
As early as October 1981, it became clear that the figure used by Holmes for the stock loss deduction exceeded the maximum amount permitted by federal law, thus causing the plaintiffs to underpay their federal income tax. Throughout the three years of negotiations with the IRS, however, the accountant and his associates assured the plaintiffs that the error could be corrected by means of reclassifying the deduction, and thereby prevent any economic loss to the plaintiffs.
In February 1983, Holmes told the plaintiffs that the amount erroneously claimed should be allowed as "a bad debt, not a loss, deduction" and that he had sought IRS appellate review of the "findings of the examiner." Then, in a letter dated September 5, 1983, an accountant assisting Holmes during the audit, W.N. Clark, informed the Wynns that an IRS "appellate staff representative" had proposed "that they would allow $68,627.00 as a business bad debt to be deductible in full and the balance of the loss as a non-business bad debt, deductible as a short term capital loss limited to $3,000.00 per year." The letter also said that the "additional taxes of $51,770.65" could be "less, depending on the outcome of some points that came up in the review."
Holmes died April 13, 1984. In a "proposal" dated August 21, 1984, the IRS offered to settle the matter on the basis of $47,148.57 in additional taxes. Clark recommended that the Wynns accept the compromise.
A few weeks later, in a letter dated September 17, 1984, accountant Clark told the Wynns that they would "soon be receiving the IRS billing for the balance of the above taxes [which] will most assuredly contain interest for the full four and one-half years which is too much." He advised the Wynns that "this interest charge should be protested because of the IRS delay in making a completion of the audit and settlement." And indeed, on October 13, 1984, the IRS sent notice that " e have closed this case on the basis agreed upon and are sending the case file to the service center [which] will adjust the account and compute interest." (Emphasis added.)
On December 10, 1984, the Wynns received notice of the results of the audit and a deficiency assessment of $47,148.57 in additional taxes and $36,089.42 in interest.
The Wynns filed their petition December 9, 1985, alleging that when they received the December 1984 "statement from the [IRS, they] first became aware that they
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