Opinion
10830-20 20894-19 6791-20 17749-21 17771-21.
09-25-2023
NOEL M. PARDUCCI & KENNETH L. PARDUCCI, ET AL.,Petitioners v. COMMISSIONER OF INTERNAL REVENUE,Respondent
ORDER
Ronald L. Buch Judge
Pending before the Court are two motions: the Hoyals' Motion for Leave to File Out of Time First Amendment to Petition and Crater Lake Trust's Motion for Leave to File Out of Time First Amendment to Petition. We are asked to grant these motions so that the parties can amend their petitions to raise new issues.
The Court will grant leave to amend a petition when the circumstances surrounding the case show that justice requires it. Because the Hoyals and Crater Lake Trust have had more than enough time to raise these issues and allowing them to amend their petitions now would delay this case and prejudice the Commissioner, we deny both Motions for Leave.
BACKGROUND
Five cases involving five sets of parties have been consolidated for trial. Jeffrey and Lori Hoyal, at Docket No. 6791-20, and Crater Lake Trust, at Docket No. 10830-20, are two of those cases. The years in issue in the Hoyals' and Crater Lake Trust's cases are 2012 and 2013. Their petitions were filed in July 2020.
On September 19, 2023, the Hoyals and the trustee for Crater Lake Trust (the Trustee) each filed a Motion for Leave to File Out of Time First Amendment to Petition. The Hoyals and the Trustee seek to amend their petitions to formally raise essentially the same issue, that a net operating loss Crater Lake Trust purportedly incurred in 2018 could be carried back and utilized by Crater Lake Trust for 2013; or in the alternative, that the Hoyals are entitled to utilize the net operating loss carryback on their tax return if the Court determines that Crater Lake Trust's income and loss is reportable on the Hoyals' tax returns. Additionally, the Trustee seeks to amend its petition to raise the argument that Crater Lake Trust materially participated in Novato Development LLC during 2012 and 2013. The Commissioner objects to the granting of these motions.
DISCUSSION
The sole issue we must determine is whether we should allow the Hoyals and the Trustee to amend their petitions to raise new issues.
I. Standards for Amending Pleadings
Rule 41(a) provides that "[a] party may amend a pleading once as a matter of course at any time before a responsive pleading is served. . . . Otherwise a party may amend a pleading only by leave of Court or by written consent of the adverse party[.]" Leave to amend a pleading is "given freely when justice so requires." Rule 41(a). However, the decision of whether to grant such a motion lies within the sound discretion of the Court. Estate of Quick v. Commissioner, 110 T.C. 172, 178 (1998).
To determine whether justice requires an amendment to a pleading, the Court must examine the circumstances in the case before it. See Estate of Quick, 110 T.C. at 178. Some of the circumstances we must consider include: (1) whether an excuse for the delay in raising the issue exists; (2) whether the opposing party would suffer unfair surprise, disadvantage, or prejudice if these motions are granted; (3) the time passed since the party's initial pleading; and (4) the completion of discovery. TBL Licensing LLC v. Commissioner, T.C. Memo. 2022-71, at *4.
II. Arguments in Support of the Motion
The Hoyals and Crater Lake Trust argue that the Court should grant their motions because amending their petitions allows them to adequately defend themselves and raise all applicable issues. Furthermore, they argue that granting their motions are "preferable to the alternative of waiting for trial and then admitting evidence of these issues and arguments under Rule 41(b)." They also note that originally the Commissioner did not object to these motions when they were discussed in June 2023. But when these motions were discussed on September 19, 2023, the Commissioner objected due to the start of trial being so close.
III. Analysis
We grant motions for leave to amend a petition if circumstances dictate that we should allow them. However, an examination of the circumstances in these cases do not persuade the Court that the Hoyals' and the Trustee's motions should be granted.
First, the reasons provided by the Hoyals and the Trustee for raising these issues at this time are inadequate. Their reason for raising the net operating loss issue at this time is because they were waiting on the Court to make a decision on the Commissioner's motion for partial summary judgment regarding whether Crater Lake Trust was a grantor trust during the years in issue. However, the Hoyals and the Trustee have known about the net operating loss issue since November 2020, when they amended their tax returns. And regardless of the grantor trust issue, this issue should have been raised then, at a minimum by the Trustee. Likewise, the Trustee failed to provide reasons why it waited until now to raise the issue of whether the Trust materially participated in a related entity during 2012 and 2013. Therefore, we find that this issue should have also been raised earlier.
Additionally, raising these issues now would require that we further delay this case. The Court's scheduling Order of October 3, 2022, established that informal discovery ended October 31, 2022, and formal discovery ended January 13, 2023. Because discovery is closed, if we allow these issues to be raised now, we would either need to continue this case to permit additional discovery or the Commissioner would not be able seek discovery with regard to these new issues. Our conclusion does not change even if the Commissioner was notified in June 2023 that the Hoyals and the Trustee anticipated raising these issues. The Hoyals and Crater Lake Trust knew of these issues in November 2020, which was well before discovery closed. The issues could have and should have been raised before. We will not further delay the trial of these cases.
And finally, raising these issues would change the scope of, and the evidence necessary for, the trial. Proving eligibility for a loss-carryback requires proofs as to the year in which the loss arose. See I.R.C. § 6214(b).
IV. Conclusion
Justice does not require that we grant leave to the Hoyals' and the Trustee's motions to amend their petitions. Accordingly, it is
ORDERED that Jeffrey and Lori Hoyal's Motion for Leave to File Out of Time First Amendment to Petition (docket no. 6791-20, no. 248) filed September 19, 2023. is denied. It is further
ORDERED that Crater Lake Trust's Motion for Leave to File Out of Time First Amendment to Petition(docket no. 10830-20, no. 246) filed September 19, 2023 is denied.