International Engine Parts

We granted review to resolve a narrow, but recurring, issue as to when actual injury, caused by an accountant's negligent filing of tax returns, occurs so as to commence the running of the two-year statute of limitations period of Code of Civil Procedure, section 339, subdivision 1 (hereafter section 339, subdivision 1). A cause of action for accountant malpractice under section 339, subdivision 1, specifically accrues "on discovery of the loss or damage suffered by the aggrieved party," but until the client suffers damage or actual injury from the negligence,  a cause of action for professional negligence cannot be established. (Schrader v. Scott (1994) 8 Cal. App. 4th 1679, 1684 (hereafter Schrader).) Some Court of Appeal decisions hold that actual injury in accountant malpractice cases occurs on final tax deficiency assessment. (See e.g., Moonie v. Lynch (1967) 256 Cal. App. 2d 361, 64 Cal. Rptr. 55 (hereafter Moonie).) The Court of Appeal herein employed a different measure, holding that actual harm occurs when the client learns, on receipt of a preliminary Internal Revenue Service (IRS) audit report, that the accountant's negligence may lead to imposition of tax deficiencies.