DMB REALCO v. MARISCAL

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DMB REALCO, LLC, et al.,
Plaintiffs/Appellants/Cross-Appellees,

v.

MARISCAL, WEEKS, MCINTYRE, & FRIEDLANDER, P.A., et al.,
Defendants/Appellees/Cross-Appellants.

No. 1 CA-CV 24-0278
FILED 07-08-2026

Appeal from the Superior Court in Maricopa County
No. CV2018-010034
The Honorable Erik Thorson, Judge

VACATED AND REMANDED

COUNSEL

Perkins Coie LLP, Phoenix
By Michael R. Huston, Diane M. Johnsen, Jordan M. Buckwald
Counsel for Defendant/Appellee/Cross-Appellant

Cohen Dowd Quigley PC, Phoenix
By Daniel G. Dowd, Daniel E. Durchslag, Jenna L. Brownlee
Counsel for Plaintiff/Appellant/Cross-Appellee
 DMB REALCO, et al. v. MARISCAL, et al.
Opinion of the Court

OPINION

Presiding Judge Michael S. Catlett delivered the opinion of the Court, in
which Judge Daniel J. Kiley and Judge James B. Morse Jr. joined.

C A T L E T T, Judge:

¶1 Legal malpractice claims must commence “within two years
after” they “accrue.” A.R.S. § 12-542. But our legislature has not defined
when such claims accrue. Glaze v. Larsen, 207 Ariz. 26, 29 ¶ 9 (2004).
Instead, that has been “left to judicial decision.” Id. In a non-litigation
context, legal malpractice claims accrue when the client should know its
attorney’s negligence caused the client harm. Com. Union Ins. v. Lewis and
Roca, 183 Ariz. 250, 252–53 (App. 1995). And harm is sufficient when
“irremediable or irrevocable[.]” Keonjian v. Olcott, 216 Ariz. 563, 566 ¶ 13
(App. 2007). We decide whether the plaintiffs timely asserted their legal
malpractice claim based on negligent tax advice.

FACTS AND PROCEDURAL HISTORY

¶2 In July 2006, DMB Realco, LLC (“DMB”) retained an attorney
at Mariscal, Weeks, McIntyre, & Friedlander, P.A. (collectively, “Mariscal”)
to donate a conservation easement to the Town of Buckeye (“Buckeye”).
Mariscal prepared a conservation easement deed (“Original Deed”),
intending for it to qualify DMB for a charitable contribution under Section
170 of the Internal Revenue Code (“Code”). DMB recorded the Original
Deed in December 2006. So on its 2006 tax returns, DMB claimed a $26.44
million deduction (“Deduction”).

¶3 Fast forward four years. The Internal Revenue Service
audited DMB’s 2006 tax return. The IRS objected to the Deduction because
it thought the Original Deed violated Treasury Regulations and the Code.
DMB retained tax counsel.

¶4 In May 2011, an IRS Agent (“the Agent”) sent DMB a Form
4605-A Examination Changes Report (“Preliminary Report”), outlining
why the Deduction failed. The Preliminary Report included a Draft Non
Cash - Land Conservation Easement Lead Sheet (“the Draft Lead Sheet”),
explaining DMB “failed to obtain a qualified appraisal, failed to obtain a

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Opinion of the Court

contemporaneous written acknowledgement, and did not fully complete
the [appraisal summary].” The Draft Lead Sheet concluded “[t]he easement
[was] not granted in perpetuity, and the vested rights of the donee
organization do not meet the requirements of the regulations.” After
DMB’s tax counsel responded, the Agent revised the Draft Lead Sheet,
sending a final version (“2011 Lead Sheet”) in July 2011.

¶5 In January 2012, the IRS sent DMB a 60-Day Letter (“First 60-
Day Letter”), explaining it was “proposing adjustments to partnership
items for the” 2006 tax year. That Letter gave DMB three options: (1) agree
to the adjustments by paying additional taxes, interest, and penalties; (2)
request an appeals conference; or (3) do nothing.

¶6 DMB chose option two—it appealed. In April 2012, DMB
“dispute[d] all of the[] proposed adjustments.” DMB admitted Mariscal
erred in “paragraph 6 of the [Original] Deed,” but it maintained the
Original Deed complied with Treasury Regulations and reforming the
Deed would fix non-compliance. Soon after, DMB recorded an amended
and restated deed (“Amended Deed”).

¶7 In September 2012, DMB supplemented its protest, notifying
the IRS that the Amended Deed “clarif[ied] the parties’ original intent[.]”
That supplement also discussed more caselaw and provided a new
appraisal, while still challenging the proposed adjustments. So the IRS
returned the case to the Agent.

¶8 In May 2014, the Agent sent DMB a Form 4605-A Examination
Changes Report, addressing DMB’s protest. The Agent conceded “[t]he
issues regarding qualified appraisal and appraisal summary” but still
challenged the “contemporaneous written acknowledgement, qualified
real property interest granted in perpetuity, and valuation” issues. After
revisions, the Agent issued a final report (“2014 Report”), again canceling
the Deduction.

¶9 In October 2014, the IRS issued a new 60-Day Letter (“Second
60-Day Letter”), explaining it was “proposing adjustments to partnership
items for the partnership and [2006 tax year].” That Second 60-Day Letter
again gave DMB three options; DMB again appealed. In that appeal, DMB
“dispute[d] all of the[] proposed adjustments.” DMB’s tax counsel then
spent a year negotiating with IRS staff.

¶10 In December 2015, the IRS Office of Appeals issued a Final
Partnership Administrative Adjustment (“FPAA”), adjusting “certain

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Opinion of the Court

partnership items” for 2006. The FPAA explained the Deduction violated
Section 170, so the IRS canceled it.

¶11 In 2016, DMB sued in state court to reform the Original Deed
and in federal court to challenge the FPAA. In state court, DMB got a
judgment reforming the Original Deed retroactive to “the original
recording date,” thereby mirroring the Amended Deed’s terms. In federal
court, DMB settled with the United States. The United States agreed DMB
could deduct $6,610,000 for 2006, if it paid penalties and interest.

¶12 In July 2016, DMB and Mariscal paused the statute of
limitations using a tolling agreement. After extensions, that agreement
expired in June 2018.

¶13 In August 2018, DMB sued Mariscal. Mariscal moved for
summary judgment, relying on the statute of limitations. See A.R.S 12-542.
Mariscal argued DMB’s malpractice claim accrued in July 2011, when DMB
received the 2011 Lead Sheet. Mariscal argued DMB’s harm then became
“irremedia[ble]” and “irrevocable” because the Agent claimed errors in the
Original Deed could not be fixed. DMB responded that accrual occurred
no earlier than December 2015, when the IRS issued an FPAA.

¶14 The superior court granted summary judgment. It concluded
Mariscal harmed DMB when DMB executed the Original Deed. The court
also concluded DMB discovered its harm no later than April 2012, when it
filed its protest. So by waiting four years to pause the limitations period—
two years after accrual—DMB’s claim came too late.

¶15 Three months after final judgment, Mariscal sought sanctions
because DMB had rejected an offer of judgment. The court said no.

¶16 DMB appealed summary judgment and Mariscal cross-
appealed sanctions. We have jurisdiction. See A.R.S. § 12-2101(A)(1).

DISCUSSION

¶17 DMB challenges summary judgment. We review summary
judgment de novo, viewing the facts most favorably to DMB (the non-
moving party). See Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003).
Summary judgment lies when “there is no genuine dispute as to any
material fact and [Mariscal] is entitled to judgment as a matter of law.”
Ariz. R. Civ. P. 56(a); Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990). A “court
may determine” accrual “as a matter of law.” Satamian v. Great Divide Ins., 257 Ariz. 163, 170 ¶ 14 (2024).

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Opinion of the Court

¶18 DMB requests we vacate summary judgment, arguing the
superior court determined incorrectly when it was harmed and discovered
that harm. DMB contends it could not have known Mariscal caused it harm
until the IRS issued an FPAA. Mariscal responds that DMB suffered harm
when executing the Original Deed, and it knew Mariscal caused that harm
no later than 2012, when DMB admitted the Deed contained errors.
Mariscal cross-appeals, again seeking sanctions.

I.

¶19 Under § 12-542, legal malpractice claims must commence
“within two years after” accrual. Keonjian, 216 Ariz. at 565 ¶ 9. The
discovery rule controls accrual. Com. Union, 183 Ariz. at 254. It says a legal
malpractice claim “cannot accrue until the client knows or should know of
his attorney’s negligent conduct.” Id. That rule is easier said than applied.

¶20 For accrual, an attorney must commit negligence (easy
enough). Glaze, 207 Ariz. at 29 ¶ 15. But doing so does not alone trigger
accrual. Instead, a client must “sustain ‘actual and appreciable’ harm
[because] of [the attorney’s] negligence.” Com. Union, 183 Ariz. at 254
(quoting Ariz. Mgmt. Corp. v. Kallof, 142 Ariz. 64, 68 (App. 1984)). So
attorney negligence resulting in no harm delays accrual. Id. There, the
limitations period starts when the client should know that his attorney’s
negligence has caused actual harm (this is where things get harder).
Keonjian, 216 Ariz. at 565 ¶ 9.

¶21 True, a client need not know how much he was damaged.
Com. Union, 183 Ariz. at 255. As we have noted, “the occurrence of harm
and the extent of damages” are “distinct.” Id. So accrual is not delayed
until the client “learns the full extent of his damages.” Id. Rather, the
discovery rule requires only “actual and appreciable” harm; accrual occurs
before a client calculates its exact damages.

¶22 To make things fuzzier, these concepts apply differently in
different contexts. There are at least three such contexts—litigation
malpractice, transactional malpractice causing immediate and irrevocable
harm, and transactional malpractice where harm is delayed.

A.

¶23 Like all humans, litigators make mistakes. And sometimes
those mistakes rise to malpractice. When they do, a malpractice claim
accrues when the litigation (including any appeal) ends. See Amfac Dist.
Corp. v. Miller, 138 Ariz. 152, 154 (1983).

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¶24 In that context, “[n]egligence alone is not actionable; actual
injury or damages must be sustained before a cause of action in negligence
is generated.” Id. at 153. But for litigation malpractice, harm is not
ascertainable until final judgment. “While the underlying civil case is . . .
on appeal, the possibility always exists that the malpractice plaintiff will
eventually prevail[.]” Glaze, 207 Ariz. at 29 ¶ 15. Put differently, when “a
plaintiff has discovered actual negligence, if he has sustained no damages,
he has no cause of action.” Amfac Dist. Corp., 138 Ariz. at 154. So “the injury
or damaging effect on the unsuccessful party is not ascertainable until” an
appeal ends or the period to appeal expires. Id.

B.

¶25 Transactional lawyers are also fallible. They too commit
malpractice. When they do, “the damage or injury [usually] occurs” when
malpractice does. Com. Union, 183 Ariz. at 256.

1.

¶26 Two opinions show this reality. First, Keonjian. There, the
plaintiff suffered immediate, irremediable, and irrevocable harm by signing
a negligently drafted property deed and gift letter. Keonjian, 216 Ariz. at
566 ¶ 13. The deed stripped her of property rights, and the letter deprived
her of reimbursement rights. Id. Also, her harm was “irremediable or
irrevocable . . . because ‘a future appeal or other court proceedings’ would
not have enabled her to [remedy the harm].” Id. (quoting Glaze, 207 Ariz.
at 30 ¶ 15 n.1). And she admitted more than two years prior that her lawyer
deserved the blame. Id. ¶ 15 (“My lawyer is supposed to tell me: Stop, it’s
not what you want to be done. But I thought he knew better. He’s a
lawyer.”). So there, the malpractice immediately caused her “irremediable
or irrevocable” harm, triggering accrual. Id. ¶ 13.

2.

¶27 Second, Kallof. There, attorney Kallof drafted a settlement
agreement with the Maloufs, which his client signed on June 6, 1968. Kallof,
142 Ariz. at 65. Kallof told his client that “upon execution, the settlement
agreement would be an enforceable contract[.]” Id. But the Maloufs had
other plans. Id. at 66. So in 1971, the client sued them. Id. The superior
court granted summary judgment for the Maloufs, this court affirmed, and
our supreme court denied review. Id. The client sued Kallof in 1981; the
superior court dismissed that lawsuit as untimely. Id.

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¶28 We affirmed. The client argued its claims were timely
because it suffered no harm until it exhausted its appeal. Id. at 67. We
disagreed. We concluded the claim was untimely because the client
claimed damages in the 1971 litigation “of $5,000 per month for each month
from and after June 6, 1968.” Id. (emphasis added). Similarly, it “claimed
other damages in the amount of $125,000 from and after June 6, 1968.” Id.
(emphasis added). Though “Kallof’s total liability . . . was not certain and
determined,” the client admitted it “began sustaining damages on the date
the settlement agreement was executed[.]” Id. at 67–68. Because the client
brought its claim in 1981, thirteen years after it claimed it first suffered
harm, its claim was tardy. Id.

C.

¶29 Unlike these settings, others exist when a client cannot know
immediately if its transactional attorney committed malpractice or whether
its attorney caused the “wrong and the resulting injury.” Satamian, 257 Ariz.
at 171 ¶ 16. Those are often situations when deciding whether transactional
advice met a client’s goals turns on later legal proceedings.

1.

¶30 The seminal opinion here is Commercial Union. There, an
insurance company sued for malpractice after its lawyer advised its policy
excluded coverage. Com. Union, 183 Ariz. at 253.

¶31 But the lawyer overlooked an Arizona Supreme Court
opinion. Id. The insured’s bankruptcy trustee filed a coverage action. Id.
Coverage counsel advised the insurance company that the law firm
overlooked the opinion, but he thought it was distinguishable. Id. The
insurance company sought summary judgment, trying to distinguish the
opinion. Id. That attempt failed, and the court in the coverage action denied
summary judgment in December 1987. Id. at 253–54.

¶32 Within two years, the insurance company and the law firm
entered a tolling agreement. Id. at 254. In February 1990, the insurance
company settled the coverage action. Id.

¶33 The insurance company then sued the law firm. At summary
judgment, the law firm conceded “it was negligent in rendering [its]
coverage opinion.” Id. at 252 n.1. Despite more than two years passing
since the law firm’s opinion, we concluded the malpractice claim was
timely. Id. at 253.

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¶34 We concluded the claim did not accrue when negligence
occurred—accrual was delayed. Why? The discovery rule applies to each
element of negligence: breach, causation, and damage. As we put it, “the
discovery rule applies not only to the discovery of negligence, but also to
discovery of causation and damage.” Id. at 253. So accrual is delayed “until
actionable negligence exists, that is, negligence” resulting “in appreciable,
non-speculative harm to the client.” Id. at 254. And negligence resulting
“in no immediate harm or damage delays accrual[.]” Id.

¶35 Sometimes harm from transactional malpractice can be
remedied or avoided through “a future appeal or other court proceedings.”
Glaze, 207 Ariz. at 30 ¶ 15 n.1. There, “the harm or damage resulting from .
. . negligence [is] speculative and uncertain when the malpractice occur[s],”
so accrual waits. Com. Union, 183 Ariz. at 255.

¶36 For example, in Commercial Union, accrual occurred in
December 1987, when the court denied summary judgment in the coverage
action based on the precedent the law firm missed. Id. at 258. It was only
then that the insurance company knew its purpose for obtaining legal
advice—to ensure it could deny coverage—was thwarted. Until then, it
could not adequately know its lawyer’s advice caused irremediable or
irrevocable harm.

2.

¶37 Our supreme court recently came to a like conclusion in
Satamian. See 257 Ariz. at 168 ¶ 1. In March 2015, the client hired an
insurance agent to insure it against liability and defense costs. Id. ¶ 2. But
the policy obtained did not list a “Yamaha watercraft” later “involved in a
tragic accident.” Id. ¶¶ 2–3. Because the policy omitted that watercraft, the
insurance company denied coverage. Id. at 168 ¶ 4. Later, the client
assigned its “insurance coverage claims” to the accident victim’s father, and
he pressed a negligent procurement claim. Id. at 169 ¶¶ 5–6.

¶38 Our supreme court concluded that claim accrued when the
insurance company denied coverage, causing the client to incur defense
costs. Id. at 172 ¶ 22. The court concluded the client “knew or should have
known” that the agent caused the “wrong and the resulting injury” in May
2017 (two years after the negligence). Id. at 171 ¶ 16. It was then that the
client “was required to fund its own defense.” Id. at 172 ¶ 22.

¶39 The claim accrued then because in a “negligent procurement
scenario, an insured anticipates full coverage, including defense and
indemnification[.]” Id. at 171 ¶ 19. Put differently, that was then the client

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knew the policy did not achieve one of its main objectives—to avoid
defense costs. So when the client knew it was incurring defense costs, the
negligent procurement claim accrued. Id. at 172 ¶ 23.

3.

¶40 We apply a similar framework for malpractice claims based
on negligent tax advice. Here, accrual occurs when the client sufficiently
knows tax advice did not achieve its purpose.

a.

¶41 In CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., we
considered when accrual occurred for an accounting malpractice claim. 198
Ariz. 173 (App. 2000). In December 1994, the California State Board of
Equalization (“CSBE”) audited CDT, Inc. (“CDT”). Id. at 174 ¶ 3.
Afterward, a CSBE investigator informed CDT it had tax liability. Id. at
174–75 ¶ 3. In January 1996, the investigator said CDT owed over $3.2
million. Id. at 175 ¶ 3. In April 1996, CSBE adopted that recommendation.
Id. CDT challenged that assessment in “administrative hearings.” Id. ¶ 4.

¶42 In September 1996, CDT sued an accounting firm for
malpractice. Later, CDT added Addison, Roberts & Ludwig (“Addison”),
another accounting firm. Id. Addison argued accrual began “immediately
after the CSBE field investigator informed CDT of its sales tax liability in
March 1995.” Id. at 176 ¶ 8. In response, CDT relied on Commercial Union
and argued accrual occurred later—in April 1996. Id. ¶¶ 8–9.

¶43 We concluded CDT’s claim was timely. Id. at 182 ¶ 32. We
reasoned that malpractice, “transactional or otherwise, does not accrue
until the plaintiff discovers the negligence and sustains ascertainable harm
as a result of that negligence.” Id. at 176 ¶ 10 (quoting Com. Union, 183 Ariz.
at 256). “[T]hat principle,” we explained, “applies to any negligence claim
against professionals, including accountants.” Id. So whether CDT would
“be legally required to pay [a] tax liability [was] relevant to” accrual. Id. at
179 ¶ 21 (cleaned up). Only when the CSBE ordered CDT to pay back taxes
could CDT know that one reason for obtaining tax advice—paying all
taxes—was thwarted. Considering the CSBE’s procedures, “any definitive
assessment of tax liability against CDT could be made only after CSBE had
made its determination and computation.” Id. Even then, “any such
assessment would abide CSBE’s final decision after the redetermination
process.” Id. So CDT’s claim was timely.

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¶44 When explaining why Commercial Union saved CDT’s claims,
we observed that “[m]ost courts . . . have adopted the date of formal tax
assessment as the accrual date in cases similar to this.” Id. ¶ 22.

b.

¶45 Some have interpreted that statement in CDT as a bright-line
rule in tax malpractice cases. See Kennedy v. Goffstein, 815 N.E.2d 646, 649
(Mass. App. 2004) (listing Arizona as a state that has “adopted a bright-line
rule as to when the statute of limitations begins to run in cases concerning
malpractice in the preparation of tax returns”). To be sure, a tax malpractice
claim sometimes (maybe often) accrues when a taxing authority makes its
final decision about taxes owed. But that is not always true. Sometimes
such a claim accrues earlier; sometimes it accrues later. CDT’s “bright-line
rule” is not so bright.

¶46 We are not the first to say so. This court clarified as much in
Coulter v. Grant Thornton, LLP, 241 Ariz. 440, 445 ¶ 14 (App. 2017). There,
the clients hired an accounting firm “to reduce their income tax liability[.]”
Id. at 443 ¶ 2. The firm recommended an “ESOP/S structure.” Id. The IRS
rejected that structure, issuing a notice of deficiency for 2006 and 2007. Id.
¶ 3. Still, the accounting firm assured the clients they would win, so the
clients “challenged the deficiency determinations and penalties in United
States Tax Court.” Id. But in 2011, the clients settled with the IRS, agreeing
to pay back taxes. Id.

¶47 In November 2011, the clients sued for malpractice. Id. ¶ 5.
The superior court dismissed that claim as untimely. Id. Applying CDT,
the court concluded the claim “accrued when the IRS issued notices of
deficiency in 2006 and 2007[.]” Id. at 444 ¶ 11.

¶48 We said CDT did not dictate. That was so because CDT did
not involve a taxpayer continuing “to consult with [an] accountant” after
the IRS issued a notice of deficiency and who relied “on the accountant’s
advice” while challenging “the IRS’ determination in the tax court.” Id. at
445 ¶ 12. We backed off a bright-line rule: “Although bright-line rules are
often useful, there are compelling reasons to forego a rule under which a
malpractice claim necessarily accrues immediately” after a taxing
authority’s final determination. Id. ¶ 14. So when “the taxpayer and the
accountant reasonably continue to believe that the accounting advice was
correct,” accrual does not occur “when the IRS issues a notice of deficiency.”
Id. Accrual occurs later.

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¶49 Accrual can also occur earlier—as when “an accountant or
lawyer” acknowledges its “advice was improper, or if the taxpayer” obtains
“a second opinion advising that the advice was improper[.]” Id. ¶ 15.
Rejecting a bright-line rule while citing Commercial Union, we concluded
that “[a] fact-based approach . . . is consistent with how we have addressed
analogous claims involving attorney malpractice.” Id. ¶ 16.

II.

¶50 Distilling this caselaw, we proceed like this. We ask whether
DMB’s malpractice claim arises from litigation or transactional advice. If
transactional, we pinpoint DMB’s purposes for the legal advice. We then
ask whether Mariscal’s alleged malpractice thwarted those purposes when
the transaction occurred or otherwise immediately caused DMB irrevocable
or irremediable harm. If not, we determine when DMB knew or should
have known Mariscal committed malpractice and caused irrevocable or
irremediable harm. In making that determination, we do not apply a
bright-line rule; we analyze the facts on their merits.

A.

¶51 Mariscal did not commit litigation malpractice. Rather,
Mariscal’s alleged malpractice occurred when advising DMB how to
convey an interest in real property and obtain a tax deduction—both
transactional matters. In so doing, Mariscal drafted the Original Deed
conveying a conservation easement. So Mariscal did not litigate for DMB.
Recognizing that, Mariscal (correctly) does not invoke Amfac or its progeny.

B.

¶52 Why did DMB engage Mariscal? For two main reasons. One,
to convey a conservation easement. Two, to prepare a deed to “satisfy the
requirements of Treasury Regulation Section 1.170A-14” and “qualify for a
charitable contribution deduction” on its 2006 tax return. We analyze
accrual with these two goals in mind.

C.

¶53 Everyone now agrees Mariscal erred when drafting the
Original Deed. But that is not dispositive. See Com. Union, 183 Ariz. at 252
n.1 (the law firm “conceded that it was negligent in rendering [its] coverage
opinion”). Instead, accrual turns on (1) when DMB should have known
Mariscal was negligent and (2) when DMB should have known Mariscal’s
negligence caused harm. Com. Union, 183 Ariz. at 253. To answer that

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second question, we ask this: when should DMB have known Mariscal
caused the “wrong and the resulting injury”? Satamian, 257 Ariz. at 171
¶ 16. And recall that an injury starts the limitations clock once it is
irremediable or irrevocable. Glaze, 207 Ariz. at 30 ¶ 15 n.1.

¶54 DMB says the relevant harm is “the IRS’s assessment of
additional tax, interest, and penalties resulting from the improperly drafted
[Original] Deed.” So DMB argues accrual did not occur until December
2015, when the IRS issued an FPAA disallowing the Deduction. Mariscal
responds that the relevant harm is “that the [Original] Deed was drafted
improperly and did not comply with the relevant regulations[.]” Mariscal
argues accrual occurred no later than 2012, when “DMB learned that the
[Original] Deed contained errors[.]” Alternatively, Mariscal argues DMB
was harmed when it began paying fees to defend against the IRS. Based on
the facts here (not applying a bright-line rule), we conclude DMB should
have known Mariscal caused it irremediable or irrevocable harm after the
IRS issued an FPAA in December 2015.

1.

¶55 The superior court concluded DMB suffered harm when
executing the Original Deed—immediately. The court reasoned that “the
alleged harm to DMB was that the [Original] Deed was drafted improperly
and did not comply with the relevant regulations as DMB intended.”

¶56 We disagree DMB suffered immediate harm. It is undisputed
that the Deed successfully conveyed a conservation easement. DMB did
not suffer harm by executing the Original Deed because the easement was
conveyed. After doing so, DMB claimed the Deduction on its tax return,
which reduced its tax liability. Had the IRS never audited DMB’s tax
return, DMB would have suffered no harm (this case would not exist).

¶57 So unlike the deed in Keonjian and the settlement agreement
in Kallof, the Original Deed operated as intended at first. See 216 Ariz. at
566 ¶ 13; see also 142 Ariz. at 67–68. In 2006, it conveyed an easement and
reduced DMB’s tax liability—just as DMB wanted. Neither Keonjian nor
Kallof support that DMB suffered immediate harm—let alone harm that was
irremediable or irrevocable—when executing the Original Deed.

2.

¶58 The superior court next concluded that “[t]he undisputed
facts show that DMB was aware of the issues with the [Original] Deed and
error by [Mariscal] at the latest in 2012 when it submitted its Protest to the

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IRS and recorded the Amended and Restated Deed.” Mariscal urges that
same conclusion.

¶59 All agree DMB knew by 2012 that the Original Deed
contained errors. DMB admitted that to the IRS and recorded the Amended
Deed. But we disagree DMB knew in 2012 that Mariscal caused it
irremediable or irrevocable harm.

¶60 Whatever mistakes Mariscal made did not impact whether
DMB conveyed a conservation easement. The IRS never questioned
whether DMB did so. Put differently, DMB conveyed a conservation
easement in 2006 and it remained in 2012 (and today as far as we know).

¶61 As for the Deduction, DMB told the IRS in 2012 that Mariscal
erred in drafting the Original Deed, so DMB recorded the Amended Deed.
But DMB urged that the Original Deed allowed the Deduction. Here is
what DMB told the IRS, “It is clear from [DMB’s] [O]riginal Deed that
[DMB] granted a vested property interest in perpetuity to [Buckeye] . . . and
[Buckeye] understood that it was receiving the Conservation Easement in
perpetuity.” So DMB argued the Original Deed complied with the Code;
the Amended Deed just “remove[d] any doubt.”

¶62 Mariscal identifies no evidence that DMB objectively believed
in 2012 that the Original Deed could not still achieve its tax goals. To be
sure, DMB knew it faced a problem resulting from errors in the Original
Deed. DMB knew it might have to pay more taxes because of those errors.
But as Commercial Union explains, “[t]he threat of future harm from”
malpractice does not “commence the limitations period.” 183 Ariz. at 255.
In 2012, DMB knew the IRS was challenging the Deduction. But DMB could
not yet know whether any harm from the IRS doing so would materialize.

¶63 That separates this case from Keonjian and Kallof. In Keonjian,
the plaintiff knew her lawyer’s malpractice caused immediate harm. See
216 Ariz. at 566 ¶ 15. And in Kallof, the plaintiff pleaded that it suffered
harm when executing the settlement agreement—the plaintiff immediately
knew the source of its harm. See 142 Ariz. at 67–68. DMB defended the
Original Deed even after acknowledging Mariscal erred. And Mariscal
produced no evidence undercutting DMB’s veracity in doing so.

¶64 Here is a hypothetical. Consider an attorney negligently
drafts a deed in year one and the client takes a tax deduction. In year two,
the client discovers the deed contains drafting errors, so it records an
amended deed. In year six, IRS staff audits the client’s tax return and
contends the original deed violated the Code. So in year seven, the IRS

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Opinion of the Court

issues an FPAA disallowing the deduction. Under the superior court’s
view, the client suffered harm in year one. And under Mariscal’s view, the
client discovered that harm in year two. Why else record an amended
deed? So accrual occurred in year two, requiring the client to sue for
malpractice before year four, two years before the IRS ever audits its tax
return and three years before the IRS disallows the deduction. But that
conclusion would conflict with how we have handled accrual in this area.
See Com. Union, 183 Ariz. at 256; CDT, 198 Ariz. at 179 ¶ 21.

3.

¶65 So DMB did not suffer harm in 2006 or have sufficient
knowledge in 2012. When did accrual occur? DMB knew or should have
known Mariscal caused DMB irremediable or irrevocable harm no earlier
than the FPAA in December 2015.

a.

¶66 At the earliest, DMB suffered harm in 2010, when the IRS
audited its 2006 tax return—not when DMB executed the Original Deed. It
was not until 2010 that IRS staff notified DMB that the Deduction—one of
two main reasons for Mariscal’s representation—was at risk.

¶67 But DMB still could not know then whether its harm was
irremediable or irrevocable or whether Mariscal caused its harm. Whether
Mariscal did so hinged on the IRS proceedings, which might alleviate
DMB’s harm (i.e., allow it to keep the Deduction). See Glaze, 207 Ariz. at 30
¶ 15 n.1.

¶68 And DMB used those proceedings to try to save the
Deduction. Between 2011 and 2012, DMB challenged the Draft Lead Sheet,
appealed the First 60-Day Letter, and supplemented its protest. As a result,
the IRS returned the case to the Agent.

¶69 Then in 2014, the IRS acceded to some of DMB’s positions.
But the IRS still issued the 2014 Report, proposing to disallow the
Deduction. In October 2014, the IRS issued the Second 60-Day Letter, again
“proposing adjustments to partnership items for the partnership and [2006
tax year.]” DMB again appealed, “disput[ing] all of the[] proposed
adjustments.” For a year, DMB’s tax counsel negotiated with the IRS. But
in December 2015, the IRS issued an FPAA. The FPAA concluded that the
Original Deed violated Section 170 by not “grant[ing] the conservation
easement in perpetuity as evidenced by several separate sections.” DMB

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Opinion of the Court

then sued and later settled with the United States, allowing DMB to deduct
$6,610,000 for 2006.

¶70 The IRS did not take a final position until issuing an FPAA in
December 2015. Until then, agency proceedings could have allowed DMB
to avoid harm. See Com. Union, 183 Ariz. at 256–57 (accrual did not occur
while “[t]he coverage issue was an open question”). Not until the IRS
finalized its position should DMB have known that the Original Deed
caused it harm. Before then, DMB’s tax counsel argued—repeatedly and at
length—that the Deduction complied with the Code. See id. at 257
(“Commercial Union’s attorney believed that Federal Insurance could be
successfully distinguished[.]”). If that position prevailed, the Deduction
would have stood. See id. Until the FPAA, any risk to the Deduction could
have proximately resulted from IRS staff pursuing an unmeritorious audit.
See id. at 257–58. But like in Commercial Union, when the IRS issued an
FPAA identifying Mariscal’s errors and disallowing the Deduction, DMB
“should have become aware” that Mariscal caused it harm. Id. at 256.

¶71 This comports with CDT. Just as the “procedures relating to
tax audits and assessments [were] relevant” in CDT, the procedures for
federal tax audits are relevant here. 198 Ariz. at 178–79 ¶ 20. Under federal
law, the FPAA was the IRS’s final position on whether the Deduction
complied with the Code. See Kaplan v. United States, 133 F.3d 469, 471 (7th
Cir. 1998) (explaining that “notice to each partner of any adjustments to
partnership items . . . takes the form of a final partnership administrative
adjustment (FPAA)” detailing “the IRS’s approval or rejection of the
partnership’s claims of taxable income and deductions.”). Until an FPAA,
the IRS’s staff might have changed its position. And here, that happened.
Based on DMB’s advocacy, the IRS returned the case to the Agent, acceded
to some of DMB’s positions, issued a Second 60-Day Letter, and agreed to
part of the Deduction. As in CDT, whether DMB would “be legally
required to pay the tax liability is relevant” for accrual. See id. at 179 ¶ 21
(cleaned up). “At the earliest, any definitive assessment of tax liability
against [DMB] could be made only after [the IRS] made its determination
and computation.” See id. So at the earliest, DMB’s claim accrued with an
FPAA in December 2015.

¶72 We need not decide whether DMB’s claim accrued later—
DMB’s claim is timely if it accrued in December 2015. See Coulter, 241 Ariz.
at 445 ¶ 14. And no circumstances trigger accrual earlier. See id. ¶ 15.
Mariscal did not admit “the challenged advice was improper,” DMB did
not “obtain[] a second opinion advising that the advice was improper,” and

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Opinion of the Court

DMB protested the IRS’s position until settling with the United States. See
id.

¶73 The superior court distinguished CDT because it involved
accounting malpractice and this case involves legal malpractice. That is a
distinction without a difference. Although one could read CDT as creating
a bright-line rule for tax malpractice claims, Coulter clarified we instead
apply “[a] fact-based approach.” Id. ¶ 16. That approach, we explained, “is
consistent with how we have addressed analogous claims involving
attorney malpractice.” Id. But applying a fact-based approach to
accounting and legal malpractice claims alike does not make CDT
irrelevant. The malpractice claim in CDT is like DMB’s claim, so how CDT
applied the discovery rule (based on Commercial Union) is relevant. See 198
Ariz. at 176 ¶ 10 (“[W]e find [Commercial Union] instructive and supportive
of CDT’s position.”). Applying a fact-based approach—not a bright-line
rule—DMB’s malpractice claim accrued no earlier than December 2015.

b.

¶74 In 2010, DMB hired tax counsel to defend against the audit.
Mariscal argues tax counsel’s fees triggered accrual. We disagree.

i.

¶75 Commercial Union rejected that incurring attorney fees
automatically triggers accrual. There, the defendant law firm argued the
plaintiff’s claim accrued in 1987, when the law firm’s “negligence caused
Commercial Union . . . damages,” including “defense costs[.]” Com. Union,
183 Ariz. at 257. We concluded that argument rested on this false premise:
the client “should have known [its] defense costs” proximately resulted
from the law firm’s negligence. Id. Instead, the client could not know the
law firm caused its harm until the superior court rejected its coverage
position. Put differently, “[i]f the client had won the lawsuit, he would not”
be able “to claim that negligent advice” caused “his defense expenses.” Id.
We concluded the client, for a time, could not pinpoint who caused its
defense costs. Id. Rather, “[s]uch costs may have” proximately resulted
from the law firm’s “negligence, or they may have” resulted from “the
trustee’s filing of a non-meritorious lawsuit.” Id. at 257–58. The client’s
claim accrued when it “should have known who and what caused the
expenditure of attorney’s fees in the coverage suit.” Id. at 258.

¶76 Similarly in CDT, we rejected that the client’s “expenditure of
attorneys’ fees” investigating “its potential liability after [an audit]
necessarily constitutes legally cognizable damages” for accrual. 198 Ariz.

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Opinion of the Court

at 181 ¶ 29. Instead, expending attorney fees did not necessarily start the
limitations clock. Id. We cited Commercial Union to conclude the client’s
“defense costs” did not start accrual, when such costs could have stemmed
from the “law firm’s negligence or” because a third party filed an action
without justification. Id.

ii.

¶77 Yes, DMB incurred attorney fees amending the Original Deed
and dealing with the IRS. But under Commercial Union and CDT, that did
not necessarily trigger accrual.

¶78 Instead, accrual occurred only when the IRS issued an FPAA
in December 2015. Until then, DMB could not know Mariscal’s error
proximately caused it harm. Until then, DMB’s attorney fees may have
resulted from the law firm’s “negligence, or they may have” resulted from
the IRS taking unsupported positions. See Com. Union, 183 Ariz. at 257–58;
see also CDT, 198 Ariz. at 181 ¶ 29. And until the FPAA, DMB could not
claim Mariscal’s negligent advice caused its defense costs. Id. DMB’s claim
accrued when it “knew or should have known who and what caused” its
attorney fees. Com. Union, 183 Ariz. at 258. Once the IRS took its final
position, DMB should have known Mariscal’s error did so. Only then did
accrual occur. See id. at 257–58; CDT, 198 Ariz. at 181 ¶ 29.

¶79 Satamian does not help Mariscal. There, the limitations period
started when the client incurred fees because the plaintiff brought a
negligent procurement claim. Satamian, 257 Ariz. at 171 ¶ 19. Such a claim
alleges the insured “anticipate[d] full coverage, including defense and
indemnification of a claim within the scope of coverage.” Id. So such a
claim accrues when “coverage is deficient” because “uncovered claims . . .
caus[e] actual harm by requiring the insured to incur costs to defend against
the uncovered claim.” Id.

¶80 Mariscal did not indemnify DMB should the IRS challenge the
Deduction. So unlike in Satamian, the limitations period did not
automatically trigger when DMB incurred attorney fees. See id. at 171 ¶ 19.
Instead, the limitations period began when DMB could know Mariscal
caused it to lose the Deduction. DMB could not know Mariscal did so until
the IRS issued an FPAA—the IRS’s official position. At that point, DMB
should have known Mariscal caused its harm, including by incurring fees.

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Opinion of the Court

CONCLUSION

¶81 DMB’s claim accrued no earlier than December 2015.
Through a tolling agreement, DMB and Mariscal paused the limitations
period from July 2016 to June 2018. DMB sued Mariscal in August 2018.
Considering the tolling agreement, DMB sued Mariscal less than two years
after accrual. So we vacate summary judgment and remand for
proceedings consistent with this opinion. And with that, Mariscal’s cross-
appeal is moot.

MATTHEW J. MARTIN • Clerk of the Court
FILED: JR

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