Opinion
35190-21
07-12-2023
DAVID HAZAN AND GRACE HAZAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Travis A. Greaves Judge
On December 27, 2021, petitioners timely filed a petition for review of respondent's notice of deficiency related to petitioners' 2015 tax liability. The case was scheduled for trial at the Court's December 5, 2022, New York, New York, trial session. On November 3, 2022, we granted the parties' motion for continuance. Currently, there is no trial date set for the case.
On May 18, 2023, respondent filed a Motion for Leave to File First Amendment to Answer, seeking to increase the deficiency asserted on an assignment of income theory related to a transfer of a partnership interest already at issue in this case. On May 19, 2023, we ordered petitioners to respond to the motion. Petitioners filed an objection on June 14, 2023.
Discussion
Rule 41(a), as applicable to this stage of the case, provides that "a party may amend a pleading only by leave of Court or by written consent of the adverse party, and leave will be given freely when justice so requires." Whether leave will be granted to file an amendment to an answer is a question falling within the sound discretion of the Court. See Estate of Quick v. Commissioner, 110 T.C. 172, 178 (1998). In determining the justice of a proposed amendment, we examine the particular circumstances in the case before us. See id. The touchstone in evaluating whether to allow an amendment is the existence of unfair surprise or prejudice to the nonmoving party. See id. The question of prejudice refers to whether the addition of the new issue by later amendment, rather than in the initial pleading, works to the unfair disadvantage of the nonmoving party. See Ax v. Commissioner, 146 T.C. 153, 168 (2016). Where no trial date has been set and ample time remains for discovery, a new matter does not cause unfair surprise or prejudice to the nonmoving party. See Ax, 146 T.C. at 169.
Petitioners object to respondent's motion on the ground that respondent's amendment is unduly prejudicial to petitioners. Petitioners argue that respondent had ample opportunity to develop this theory between the 2018 examination and the answer and that the amendment is not due to newly discovered evidence but rather new favorable precedent. Additionally, petitioners argue that respondent conducted an improper second audit in violation of section 7605(b) and the closing agreement.
Justice requires us to grant respondent's leave to amend his answer because there is nothing in the record which supports a finding that petitioners would suffer unfair surprise or prejudice as a result of respondent's amendment. Although respondent does not provide a reason for the delay, any prejudice to petitioners is negated by the availability of time to prepare for trial. This case has not been set for trial and time remains for additional discovery. Therefore, petitioners have sufficient time to resist the assignment of income theory. Further, petitioners' argument that respondent conducted an improper audit is essentially an attack on the validity of the notice of deficiency and is not appropriately raised at this time to challenge respondent's motion. See Waterman v. Commissioner, 91 T.C. 344, 349 (1988).
Because this case is not currently set for trial, we do not find that petitioners will be unfairly prejudiced by the amendment. Therefore, we grant respondent's motion.
Upon due consideration, it is
ORDERED that respondent's Motion for Leave to File First Amendment to Answer, filed May 18, 2023, is granted. It is further
ORDERED that the Clerk of Court shall file respondent's First Amendment to Answer, lodged May 18, 2023, as of the date of this order.