Opinion
2182-22 7936-22
07-31-2023
ESTATE OF KEVIN GIBLIN, DECEASED, CATHERINE GIBLIN, PERSONAL REPRESENTATIVE, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Adam B. Landy Special Trial Judge
This case was set for trial at the Court's Boston, Massachusetts, trial session scheduled to commence on June 5, 2023. On March 16, 2023, the parties filed a Joint Motion for Continuance which the Court granted on March 21, 2023, restoring this case to the Court's general docket for trial or other disposition in due course.
Pending before the Court is the Commissioner's Motion for Leave to File First Amendment to Answer, filed May 17, 2023. Simultaneously, the Commissioner lodged his First Amendment to Answer. On June 13, 2023, we ordered petitioners to respond to the Commissioner's motion. An objection was filed on July 5, 2023.
Rule 41(a), in pertinent part, provides that "a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave shall be given freely when justice so requires." This rule reflects "a liberal attitude towards amendment of pleadings." Shang v. Commissioner, T.C. Memo. 2008-69, 2008 WL 724034, *1 (citation omitted). Whether leave to file an amendment to answer will be granted is a question falling within the sound discretion of the Court. Estate of Quick v. Commissioner, 110 T.C. 172, 178 (1998), supplemented by 110 T.C. 440 (1998); Law v. Commissioner, 84 T.C. 985, 990 (1985). An important factor in deciding whether leave will be granted is the existence of unfair surprise or prejudice to the nonmoving party. Estate of Quick, 110 T.C. at 178-80; Law, 84 T.C. at 990.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
"The question of prejudice is whether the addition of those new issues by a later amendment, rather than by inclusion in the initial pleading, creates an unfair disadvantage to the other party." Cardiovascular Center, LLC v. Commissioner, T.C. Memo. 2023-64, *6 (citing Ax v. Commissioner, 146 T.C. 153, 168-69 (2016)). "Where an amendment is sought on the eve of trial, so that the nonmoving party is deprived of fair notice and opportunity to prepare, prejudice to the nonmoving party is apparent." Id.; but see Estate of Strangi v. Commissioner, 293 F.3d 279, 281 (5th Cir. 2002) (stating that a motion to amend made 52 days before trial was not made shortly before trial), aff'g in part, rev'g in part, and remanding 115 T.C. 478 (2000).
In his motion, the Commissioner seeks to allege an increased deficiency and accuracy-related penalty, pursuant to section 6662, for tax year 2016 on the basis of a total disallowance of the non-cash charitable contribution deducted by petitioners because the contribution failed to meet the requirements set forth in section 170(f)(11)(A), section 155(a)(3) of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. No. 98-369, 98 Stat. 494, and Treas. Reg. §§ 1.170-13(c)(2)(B) and 1.170-13(c)(4).
Petitioners object to the Commissioner's motion on the ground that the Commissioner's lodged Amendment to Answer is unduly prejudicial to them. Petitioners argue that the Commissioner is improperly seeking to amend his Answer (1) well after the expiration of his ability to do so as a matter of right pursuant to Rule 41, (2) from information already in his possession for many years constituting an unfair and impermissible delay, and (3) on a theory for which they will be able to assert a reasonable cause defense to the increased deficiency and accuracy-related penalty based upon the advice of their experienced tax advisors rendering the amendment futile. Petitioners maintain that granting the Commissioner's motion would be unduly prejudicial to them because (1) they were unaware that the Commissioner was considering pursuing the disallowance of the entire non-cash contribution deducted by them until shortly before the Commissioner filed his motion, and (2) the Amendment to Answer would require them to offer greater amounts of evidence in defense at trial.
Justice requires that we grant the Commissioner's motion. Petitioners have not shown they will suffer unfair surprise or prejudice because of the Commissioner's Amendment to Answer. The Commissioner will bear the burden of proof on the new issues raised as required by Rule 142(a)(1). Although the Commissioner states these new issues were discovered after engaging in discovery, it does not appear that the Commissioner is acting in bad faith or with a dilatory motive. See, e.g., Foman v. Davis, 371 U.S. 178, 182 (1962)("[i]n the absence of any apparent or declared reason- such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.- the leave sought should, as the rules require, be 'freely given.'"); Russo v. Commissioner, 98 T.C. 28, 31 (1992); Ho v. Commissioner, T.C. Memo. 2006-41, 2006 WL 626254, at *6. Furthermore, this case is not set for trial in Boston, and petitioners have ample time to prepare for trial and to conduct additional informal and formal discovery to defend themselves against the new issues. Given the liberality of Rule 41(a), the circumstances of this proceeding do not meet the requisite prejudice or delay to justify denial of the Commissioner's motion.
Upon due consideration of the Commissioner's motion, petitioners' objection, and for cause, it is
ORDERED that the Commissioner's Motion for Leave to File First Amendment to Answer, filed May 17, 2023, is granted. It is further
ORDERED that the Clerk of Court shall file the Commissioner's First Amendment to Answer, lodged May 17, 2023, as of the date of this order.