Suing Your Accountant or Adviser for Malpractice in MN

What does a Minnesota company have to prove to win a malpractice claim against its accountant?

A company suing its accountant must prove the same elements as a legal malpractice claim: an accountant-client relationship, a failure to use reasonable care, that the company would not have suffered the loss but for the advice, that the loss was a foreseeable result, and actual damages. Accountants owe their clients the care of an ordinary, careful member of the profession.

The Minnesota Supreme Court set this out in Vernon J. Rockler & Co. v. Glickman, Isenberg, Lurie & Co., 273 N.W.2d 647 (Minn. 1978): “Accountants owe their clients a duty of reasonable care; they must exercise the average ability and skill of those engaged in that profession.” The court listed the elements as a duty (the existence of an accountant-client relationship), breach (the failure of the accountants to discharge their duty of reasonable care), factual causation, proximate causation, and damages. Rockler also shows how a claim can fail on these elements. The Supreme Court upheld two trial court findings: that the advice “did not constitute professional malpractice,” and that the advice “was not the factual cause” of the broker-dealer’s loss, because it made the securities transfers to cover its short sales.

The standard is ordinary care, not perfection. In Bonhiver v. Graff, 248 N.W.2d 291 (Minn. 1976), two CPAs testified that the defendants “did not use the ordinary and reasonable standard of care exercised by the ordinary, careful certified public accountant,” and that testimony supported the negligence finding. A claim can also be framed as breach of the engagement letter, or as negligent misrepresentation when the accountant supplied false information the company relied on.

How does Minnesota’s expert-affidavit rule apply to a claim against a CPA?

Minnesota’s expert-affidavit statute applies to claims against certified public accountants, including a counterclaim. When expert testimony is needed to prove the claim, the company must serve an affidavit with its pleadings, ordinarily one certifying an expert review, and later serve a second affidavit naming its experts. Missing a required affidavit or its follow-up deadline can end the case with prejudice.

Minn. Stat. § 544.42, subd. 1, provides that “professional” “means a licensed attorney or an architect, certified public accountant, engineer, land surveyor, or landscape architect licensed or certified under chapter 326 or 326A.” The same subdivision provides that an “action” “includes an original claim, cross-claim, counterclaim, or third-party claim,” so the rule reaches a malpractice counterclaim against a CPA who sues the company for unpaid fees. Subdivision 2 applies “In an action against a professional alleging negligence or malpractice in rendering a professional service where expert testimony is to be used by a party to establish a prima facie case.” The first affidavit, under subdivision 3(a)(1), states that “the facts of the case have been reviewed by the party’s attorney with an expert whose qualifications provide a reasonable expectation that the expert’s opinions could be admissible at trial and that, in the opinion of this expert, the defendant deviated from the applicable standard of care and by that action caused injury to the plaintiff.” Subdivision 2(1) requires the party to “serve upon the opponent with the pleadings” that affidavit “unless otherwise provided in subdivision 3, paragraph (a), clause (2) or (3),” and those clauses let the affidavit state instead that “the expert review required by clause (1) could not reasonably be obtained before the action was commenced because of the applicable statute of limitations” or that “the parties have agreed to a waiver of the expert review required by clause (1) or the party has applied for a waiver or modification by the court under paragraph (c).” The statute-of-limitations route still requires the expert review later: under subdivision 3(b), “If an affidavit is executed under paragraph (a), clause (2), the affidavit in paragraph (a), clause (1), must be served on the defendant or the defendant’s counsel within 90 days after service of the summons and complaint.” The second affidavit, under subdivision 4(a), must “state the identity of each person whom the attorney expects to call as an expert witness at trial to testify with respect to the issues of negligence, malpractice, or causation.”

The requirement has a release valve. Under subdivision 3(c), “The certification of expert review required under this section may be waived or modified if the court where the matter will be venued determines, upon an application served with commencement of the action, that good cause exists for not requiring the certification.” The same paragraph adds: “If the court denies a request for a waiver under this subdivision, the plaintiff must serve on the defendant the affidavit required under subdivision 2, clause (1), within 60 days, and the affidavit required under subdivision 2, clause (2), within 180 days.” The penalties are severe. Subdivision 6(a) provides: “Failure to comply with subdivision 2, clause (1), within 60 days after demand for the affidavit results, upon motion, in mandatory dismissal of each cause of action with prejudice as to which expert testimony is necessary to establish a prima facie case.” Subdivision 6(b) provides: “Failure to comply with subdivision 3, paragraph (b) or (c), results, upon motion, in mandatory dismissal of each cause of action with prejudice as to which expert testimony is necessary to establish a prima facie case.” Check the current text of the statute for these time limits. In practice, when the limitations period allows, the expert review should happen before the complaint is drafted, and often before a pre-litigation demand letter goes out, because the expert’s opinion shapes what the company can credibly demand. The statute names CPAs; it does not name tax preparers who are not CPAs, financial advisers, or brokers, although expert testimony on the standard of care may still be needed to prove those claims.

What losses can a company recover when an accountant’s error leads to tax penalties?

A company recovers the loss the error caused, measured against what the company would have owed with correct advice. The Minnesota Supreme Court requires proof that the company actually suffered increased tax liability because of the advice. Shared fault reduces the recovery.

Rockler frames damages as causation: the plaintiff there had to show “that plaintiff actually suffered increased tax liability due to defendants’ advice.” That company sought the deficiency, interest, penalties, and the attorney fees it spent with the IRS, and the Supreme Court affirmed on the no-malpractice and no-causation findings without reaching the company’s other contentions. The practical question for every line item is the same one: would the company have paid this if the accountant had done the job right?

The first step on a penalty is usually an abatement request to the IRS. Under 26 U.S.C. § 6651(a)(1), the failure-to-file addition applies “unless it is shown that such failure is due to reasonable cause and not due to willful neglect.” The U.S. Supreme Court drew a line in United States v. Boyle, 469 U.S. 241 (1985). On substantive advice, it wrote: “When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice.” On deadlines, it held the opposite, because “one does not have to be a tax expert to know that tax returns have fixed filing dates and that taxes must be paid when they are due.” So for the § 6651(a)(1) late-filing addition that Boyle construed, reliance on an adviser on “a matter of tax law, such as whether a liability exists” can be reasonable cause, while reliance on a CPA to meet the filing deadline usually is not.

Shared fault matters too. Under Minn. Stat. § 604.01, subd. 1, “Contributory fault does not bar recovery in an action by any person or the person’s legal representative to recover damages for fault resulting in death, in injury to person or property, or in economic loss, if the contributory fault was not greater than the fault of the person against whom recovery is sought, but any damages allowed must be diminished in proportion to the amount of fault attributable to the person recovering.” Subdivision 1a counts an “unreasonable failure to avoid an injury or to mitigate damages” as fault, and evidence of a failure to mitigate “may be considered only in determining the damages to which the claimant is entitled,” which is one more reason to pursue abatement promptly.

How do engagement-letter liability limits and arbitration clauses affect the claim?

An engagement letter may cap the firm’s liability or require arbitration. Minnesota courts strictly construe clauses that shield a party from its own negligence and enforce arbitration clauses as ordinary contract terms, so the exact wording of the signed letter usually decides where the claim is heard and how much is at stake.

The current Minnesota Supreme Court statement is Lund v. Calhoun Orange, Inc., 20 N.W.3d 871 (Minn. 2025): “A contractual provision that shields a party from future liability for their own negligent acts is subject to strict construction and is enforceable only when the provision clearly and unequivocally states the parties’ intent that the contract shift liability for the party’s own negligent acts.” Under Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920 (Minn. 1982), such a clause “will be strictly construed against the benefited party,” and “If the clause is either ambiguous in scope or purports to release the benefited party from liability for intentional, willful or wanton acts, it will not be enforced.” Schlobohm also asks whether there was a disparity of bargaining power and whether the service is a public or essential one. Both cases involved full releases at fitness clubs; neither decided how a cap on damages in a professional engagement letter is treated, so a cap is read on its own words. For drafting and negotiating these terms generally, see limitation of liability clauses in Minnesota.

Arbitration clauses are enforced like other contract terms. Minn. Stat. § 572B.06, paragraph (a), provides that an agreement “to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of contract.” Under paragraph (b), “The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.” For a written arbitration provision in a contract evidencing a transaction involving commerce, 9 U.S.C. § 2 makes such a clause “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Arbitration changes the forum, the procedure, and the cost of the case; see how Minnesota courts treat arbitration clauses.

What rules apply to a tax preparer who is not a CPA?

A Minnesota statute sets standards of conduct for paid tax preparers, bars hold-harmless clauses and claim waivers, and gives the client a civil claim with mandatory awards of actual and consequential damages, statutory damages, and attorney fees. It does not cover attorneys, CPAs, registered accounting practitioners, their firms, enrolled agents, those working under the direction or supervision of an exempt preparer or supervising one, or a registered third-party bulk filer that files returns and deposits withheld taxes for another employer. The hold-harmless bar and the civil claim still apply to an otherwise exempt preparer who has, for example, “had a professional license suspended or revoked for cause” or “been censured, suspended, or disbarred under United States Treasury Department Circular 230.”

Minn. Stat. § 270C.445, subd. 3, provides that no tax preparer shall “without good cause fail to promptly, diligently, and without unreasonable delay complete a client’s return,” or “fail to act in the best interests of the client.” Clause (24) bars a preparer from including “any of the following in any document provided or signed in connection with the provision of tax preparation services,” including “a hold harmless clause” and “a provision in which the client agrees not to assert any claim or defense otherwise available.” Subdivision 7(b) provides that “A client may bring a civil action seeking redress for a violation of this section in the conciliation or the district court of the county in which unlawful action is alleged to have been committed or where the respondent resides or has a principal place of business,” and under subdivision 7(c), “A court finding for the plaintiff must award” “actual damages,” “incidental and consequential damages,” statutory damages tied to the preparation fees, “reasonable attorney fees,” and court costs.

The exemptions decide who is covered. Subdivision 8(a) provides that these provisions “do not apply to” “an attorney admitted to practice under section 481.01,” “a registered accounting practitioner, a registered accounting practitioner firm, a certified public accountant, or a certified public accountant firm, licensed in accordance with chapter 326A,” “an enrolled agent who has passed the special enrollment examination administered by the Internal Revenue Service,” “a person who provides, or assists in providing, tax preparation services within the scope of duties as an employee under the direction or supervision of a person who is exempt under this subdivision,” or “a person acting as a supervisor to a tax preparer who is exempt under this subdivision.” Under subdivision 2(h)(1), “tax preparer” also excludes “an employee who prepares their employer’s return.” Subdivision 2(h)(5) also excludes “a third-party bulk filer as defined in section 290.92, subdivision 30, that is currently registered with the commissioner,” and Minn. Stat. § 290.92, subd. 30(a)(2), defines that filer as “a person who has custody or control over another employer’s funds for the purpose of filing returns and depositing the withheld taxes of the other employer with the commissioner.” Subdivision 8(b) brings an exempt preparer back within the statute after certain discipline, such as a license suspended or revoked for cause. A company whose preparer is not excluded by subdivision 2(h) and falls outside all five exemptions has this statutory claim in addition to ordinary negligence and contract claims.

What claims does a company have against a financial adviser or broker?

A company harmed by an investment adviser’s fraud has a claim under the Minnesota Securities Act to recover the fees it paid plus its actual damages, interest, costs, and attorney fees, and the act voids any agreement waiving its protections. The act also preserves other remedies that may exist, such as negligence or contract claims.

Minn. Stat. § 80A.76, subsection (f), provides that “A person that receives directly or indirectly any consideration for providing investment advice to another person and that employs a device, scheme, or artifice to defraud the other person or engages in an act, practice, or course of business that operates or would operate as a fraud or deceit on the other person, is liable to the other person.” Under subsection (f)(1), the person defrauded may recover “the consideration paid for the advice and the amount of any actual damages caused by the fraudulent conduct, interest from the date of the fraudulent conduct, costs, and reasonable attorneys’ fees determined by the court, less the amount of any income received as a result of the fraudulent conduct.” Subsection (f)(2) excludes a broker-dealer whose advice “is solely incidental to transacting business as a broker-dealer and no special compensation is received for the investment advice.”

Two more provisions matter to a company reading its account paperwork. Subsection (l) provides that “A condition, stipulation, or provision binding a person purchasing or selling a security or receiving investment advice to waive compliance with this chapter or a rule adopted or order issued under this chapter is void.” Subsection (m) provides that “The rights and remedies provided by this chapter are in addition to any other rights or remedies that may exist.” This statutory claim has its own, separate limitations periods in subsection (j), which differ from the general rule in the next section, so check its current text early. A claim against the person who sold the company a security is a separate claim under subsection (b), titled “Liability of seller to purchaser.” If a brokerage or advisory account agreement contains an arbitration clause, it is tested under the rules in the engagement-letter section above.

When does the limitations period start on an accounting malpractice claim?

The limitations period starts when the company first suffers some damage from the error, not when it discovers the error. In a tax case, that can be the day the company first becomes liable for a tax, years before the IRS sends a notice. Minnesota does not wait for the full amount to be known.

Minn. Stat. § 541.05, subd. 1, states: “Except where the Uniform Commercial Code otherwise prescribes, the following actions shall be commenced within six years:” Clause (1) covers an action “upon a contract or other obligation, express or implied, as to which no other limitation is expressly prescribed;” and clause (5) covers an action “for criminal conversation, or for any other injury to the person or rights of another, not arising on contract, and not hereinafter enumerated.” Check the current text of the statute before relying on any period. In Bonhiver, the Minnesota Supreme Court applied the clause then cited as “Minn. St. 541.05(5)” to the claim against the accounting firm and held the claim had accrued once “All of the negligent acts chargeable to Schwartz, Frumm had been committed and damage to American Allied had occurred.”

Two later legal malpractice decisions under the same statute restate and apply the accrual rule. In Herrmann v. McMenomy & Severson, 590 N.W.2d 641 (Minn. 1999), the court held that “A cause of action survives a motion to dismiss so long as “some” damage has occurred as a result of the alleged malpractice,” that “the running of the statute does not depend on the ability to ascertain the exact amount of damages,” and that the claim accrued when the company became liable for the excise tax, not when the IRS assessed it years later. Antone v. Mirviss, 720 N.W.2d 331 (Minn. 2006), added that a claim accrues “on the occurrence of any compensable damage, whether specifically identified in the complaint or not.” Herrmann notes one exception: absent “fraudulent concealment,” ignorance of the claim does not stop the clock. Where both sides want time to investigate before suit, a tolling agreement can pause the period by contract.

How should a company preserve the accountant’s file and its own records?

A company should request its records and the relevant working papers from the CPA in writing as soon as it suspects an error, and preserve its own emails and books. Minnesota law treats working papers as the CPA’s property but requires the CPA to furnish the client’s records and certain copies on request.

Under Minn. Stat. § 326A.13, paragraph (a), working papers, except the reports the CPA gave the client and records that are part of the client’s own records, “remain the property of the licensee in the absence of an express agreement between the licensee and the client to the contrary.” Bonhiver said the same: “The workpapers remain the property of the accounting firm and not of the client.” Paragraph (b) provides that “A licensee shall furnish to a client or former client, upon request and reasonable notice:” “a copy of the licensee’s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client,” and “any accounting or other records belonging to, or obtained from or on behalf of, the client that the licensee removed from the client’s premises or received for the client’s account.” Paragraph (c) adds that “Nothing in this section requires a licensee to keep any work paper beyond the period prescribed in any other applicable statute,” so a request made early reaches papers that may later be discarded. The full working papers, beyond these categories, usually come through discovery once a case is filed.

The company’s own records matter as much. Emails asking the accountant a question, the accountant’s answers, and board minutes recording reliance on the advice are often the proof of causation that Rockler requires. A written legal hold notice to the people who hold those records, and the steps for preserving evidence, keep that proof intact. A complaint to the Board of Accountancy is a separate track: under Minn. Stat. § 326A.08, subd. 5, the board may act where a licensee “has engaged in conduct or acts that are negligent or otherwise in violation of the standards established by board rule, where the conduct or acts relate to providing professional services,” and its orders may “deny, refuse to renew, suspend, temporarily suspend, or revoke the application, or practice privileges, registration or certificate of a person or firm; censure or reprimand the person or firm.”

A claim against an accountant or adviser turns on four things: proof that the error, not the company’s own choices, caused the loss; the expert-affidavit steps and their deadlines when filing against a CPA; the exact words of the engagement letter or account agreement; and the date the first damage occurred. If your company has a loss from a professional’s advice and you would like a second set of eyes on the engagement letter, the timeline, and what the company could recover, email [email protected] with a short description of what happened and who the professional is. More on how I handle disputes is on my business litigation page.