Brower v. Davidson, Deckert, Schutter & Glassman, P.C.

• Decision Date: 03 April 1984
• Docket Number: No. WD,WD
• Citation: 686 S.W.2d 1
• Court: Missouri Court of Appeals
• Parties: Wayne H. BROWER, et al., Plaintiffs-Appellants, v. DAVIDSON, DECKERT, SCHUTTER & GLASSMAN, P.C., et al., Defendants-Respondents. 34723.

Page 1

686 S.W.2d 1

Wayne H. BROWER, et al., Plaintiffs-Appellants, v. DAVIDSON, DECKERT, SCHUTTER & GLASSMAN, P.C., et al.,

Defendants-Respondents.

No. WD 34723.

Missouri Court of Appeals,

Western District.

April 3, 1984.

Motion for Rehearing and/or Transfer to

Supreme Court Overruled and Denied

May 29, 1984.

Application for Transfer Sustained

July 17, 1984.

Retransferred Jan. 29, 1985.

Court of Appeals Opinion Readopted

Feb. 6, 1985.

Steven W. White, Independence, for plaintiffs-appellants.

Floyd R. Finch, Jr., B.W. Jacob, and Gregory L. Vranicar, Kansas City, for defendants-respondents.

Before SHANGLER, P.J., and KENNEDY and LOWENSTEIN, JJ.

KENNEDY, Judge.

This is a malpractice case. The defendants are attorneys and an accountant. The negligence alleged against them is that they failed to complete within 12 months the distribution to the stockholders of the assets of a liquidating corporation, under a Section 337 liquidation, I.R.C. § 337 (1958). The injury alleged is that the plaintiffs, who were the sole shareholders of the liquidated corporations, were subjected to a claim by the Internal Revenue Service for additional income taxes, a claim ultimately settled by plaintiffs' payment of a substantial sum.

The trial court granted summary judgment to the defendants on the ground that the plaintiffs' claim, filed July 18, 1980, was barred by the five-year statute of limitations, § 516.120, RSMo 1978. Plaintiffs have appealed. We affirm the judgment.

The facts of the case are as follows:

Plaintiffs were the sole stockholders of two closely held corporations, known as Coach Lamp Corner Apartments, Inc., and Coach Lamp Investment, Inc. They wanted to dissolve the corporations and transfer the assets to themselves. The corporations seem to have made substantial capital gains upon the sale of real estate. In order to avoid the taxation of the capital gain to the corporation, the defendant attorneys and Mr. Milligan, the defendant accountant, advised them to take advantage of the provisions of Section 337 of the Internal Revenue Code. In pursuance of that device, the corporations adopted a plan of liquidation which provided for a complete distribution of all the assets of the corporations within a period of 12 months from the adoption of the plan of liquidation. The plan was adopted January 26, 1972, so it was necessary to complete the distribution of the assets by January 26, 1973.

According to the allegations of the petition, the defendants negligently failed to accomplish the distribution of the assets within the 12-month period, as a result of which the Internal Revenue Service disallowed the Section 337 treatment of the capital gains by the corporations and claimed additional taxes thereon of $52,355.43. The record shows that the examination which culminated in the Internal Revenue's assertion of its claim was before May 12, 1975.

On March 15, 1973, the corporations had filed their 1972 income tax returns, and their final (1973) return, in which they treated the distribution of the corporate assets as having occurred prior to January 26, 1973, and treated the corporations' capital gains as non-recognizable under Section 337. The fact was that the distribution had not been completed until five days after the January 26 deadline.

In 1974 or 1975 both corporations had received a notice from the Internal Revenue Service of an intent to examine the corporate income tax returns. Thereafter, the income tax returns of the corporations were examined by the Service particularly to determine if they had complied with the requirements of Section 337.

That audit, or examination, as noted above, was completed sometime prior to May 12, 1975. That is the date of a memorandum to defendant accountant Milligan from Internal Revenue Agent Jean Ahlstrom McCormick: The memorandum said: "Enclosed are forms relating to Coach Lamp. The deficiencies on the corporations ... will go unagreed as we discussed before but am sending copies of my computations of additional tax for your information anyway." Attached thereto were computations indicating a deficiency of $52,355.43. According to an uncontradicted affidavit of Mr. Milligan, he had discussed the agent's findings with Internal Revenue Agent McCormick and also with the plaintiffs before the receipt by him of the report itself, and the plaintiffs had told Milligan that they would not agree to the deficiencies.

In due time plaintiffs took an unsuccessful appeal to the regional commissioner's office. Just when the defendant attorneys were brought back into the case does not appear, but they seem to have represented the plaintiffs in this appeal. After receiving statutory notices of deficiency on November 30, 1977, plaintiffs, represented now by other counsel than defendants, filed a petition in the United States Tax Court disputing the proposed assessment.

Ultimately on December 9, 1979, the plaintiffs, the corporations and the Internal Revenue Service entered into a stipulation which was reduced to judgment on December 30, 1979. Plaintiffs' additional tax liability, including interest, was agreed to be $60,000, which plaintiffs paid.

Plaintiffs' lawsuit against defendants was filed July 18, 1980.

The parties agree that § 516.120, RSMo 1978, the five-year statute of limitations, is applicable.

The question presented is when plaintiffs' damage was "capable of ascertainment" within the meaning of § 516.100, RSMo 1978, marking the accrual of their cause of action against defendants.

We hold that, at the latest, the statute of limitations commenced to run on or about May 12, 1975. That is the date of the Internal Revenue agent's report, calculating a tax deficiency of $52,355.43, based upon the failure to distribute the corporate assets within the one-year period prescribed by Section 337. The findings of the report had been discussed by Milligan with the Internal Revenue agent and with the plaintiffs before the receipt by him of the report itself, and plaintiffs had told Milligan that they would not agree to the deficiencies.

From that point on, plaintiffs can scarcely claim that they did not know that they were exposed to a substantial tax liability by reason of the failure to complete the distribution of the corporate assets...