Opinion
5188-19
06-07-2021
Abdo Saleh & Sayada Saleh Petitioners v. Commissioner of Internal Revenue Respondent
ORDER
RONALD L. BUCH, JUDGE
Pending before us is Mr. and Mrs. Saleh's motion to amend their petition. The Commissioner's notice of deficiency determined additional income, and the Salehs' original petition, filed pro se, alleged their eligibility for deductions to offset that income. After hiring counsel, the Salehs seek to amend their petition to challenge the Commissioner's determination of additional income.
Our rules instruct that leave to amend a pleading "shall be given freely when justice so requires." Rule 41. (Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar.) Although the Salehs' case has been pending for over two years, under their unique circumstances, justice requires that we allow the amendment, and their motion will be granted.
BACKGROUND
The following facts are stated solely for the purpose of disposing of the motion and are not findings of fact for this case.
Abdo and Sayada Saleh timely filed a joint Form 1040, U.S. Individual Income Tax Return, for 2015. On their return, they reported $3,885 of wage income from Southfield Grant, Inc., $23,214 of taxable pensions and annuities, and a $2,000 Schedule E loss related to rental properties, which resulted in -$5,286 of taxable income. The Salehs claimed a $1,550 earned income credit, and a $133 additional child tax credit.
The Commissioner initiated an examination of the Salehs' return ultimately resulting in his issuing the notice of deficiency that underlies this case. In addition to other adjustments, the Commissioner's principal adjustment is his determination that the Salehs received $214,427 of income from Southfield Grant, Inc. According to the Commissioner's notice, he determined the additional income based on a bank statement analysis. The proposed adjustments resulted in computational changes that would eliminate the Salehs' earned income credit and additional child tax credit. The changes cumulatively resulted in a $47,889 tax deficiency. In addition, the Commissioner determined a section 6662(a) accuracy-related penalty of $9,578. On December 14, 2018, the Commissioner mailed a notice of deficiency to the Salehs containing these determinations .
On March 13, 2019, the Salehs timely mailed a petition to the Court challenging the Commissioner's determinations. They filed their petition pro se, and in it they state, "I do not agree because the IRS did not account for the expenses associated with that income." They also address their difficulties in providing information regarding their case, stating "I am oversees [sic] and stuck in Yemen because of the war." They also included with their petition nearly 100 pages of receipts and bank statements. Those bank statements include statements of Southfield Grant, Inc., the entity from which the Commissioner determined the Salehs had received income.
The Commissioner promptly filed his answer and the Court first set this case for trial at a session of the Court scheduled for March 2, 2020. At the March 2, 2020, call of the case, the Salehs' son appeared and explained that his father remained outside the country. The Court continued the case.
This case was next set for trial in September 2020. In advance of that trial session, the Salehs' certified public accountant claimed to have the Salehs' records, but he could not meet to discuss the case because he had been diagnosed with COVID-19. He also reported that the Salehs remained outside the country. The Court again continued the case.
In November 2020, Mr. Cowan sent to counsel for the Commissioner his entry of appearance. (Because the Court's electronic docket was shut down for a period of time, that entry of appearance was not placed on the docket until December 31, 2020.)
In February 2020, the parties filed a status report stating that counsel for the Commissioner was in the process of providing records to the Salehs' counsel, however, that process was delayed because someone in the office of the Commissioner's counsel had contracted COVID-19.
In March 2020, the Salehs, through their counsel, filed the present motion for leave to amend their petition. In short, the amendment would seek to place all of the Commissioner's determinations in his notice of deficiency at issue. The motion observes that the Salehs are not trained in tax law. The motion also observes, as indicated in the petition, hearing transcript, and status report, that the Salehs were trapped in Yemen for an extended period of time. We will also take judicial notice that, during this time, there has also been a global pandemic with periodic bans on international travel. We will further note that this case is not currently set for trial.
The Commissioner opposes the Salehs' proposed amendment arguing that they have not sufficiently justified their delay. He further argues that permitting their amendment would substantially prejudice the Commissioner because the "new allegations * * * would now require the parties to go back several years * * * to fully and adequately litigate these matters, potentially requiring formal discovery."
DISCUSSION
A party generally may amend a pleading without leave of the Court before a responsive pleading has been filed. Rule 41(a). But after a response has been filed, a party may only amend a pleading with consent of the opposing party or leave of the Court. Id.
We are permissive in allowing amendments. Rule 41(a) provides that we will approve such amendments "freely when justice so requires." This phrasing reflects "a liberal attitude toward amendment of pleadings." Notes to the Rule of Practice & Procedure of the United States Tax Court, 60 T.C. 1057, 1089 (1973).
Whether to grant a motion to amend a petition is within the discretion of the Court. Arberg v. Commissioner, T.C. Memo 2007-244. But as the Supreme Court has observed: "In 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.'" Foman v. Davis, 371 U.S. 178, 182 (1962). In contrast, we should deny an untimely amendment where "no excuse for delay exists and there is prejudice or substantial inconvenience to the adverse party." Manzoli v. Commissioner, T.C. Memo. 1989-94, aff'd, 904 F.2d 101 (1st Cir.1990).
For the Salehs, there is both an apparent and a stated reason for the delay in amending their petition. The Salehs initially filed their petition pro se. In the time between filing their petition and their motion for leave to amend, the Salehs were trapped (to use their word) in Yemen due to war. And while there, a global pandemic broke out. Upon return, they hired counsel who promptly sought to amend the petition.
From the Commissioner's side, we do not see the undue prejudice or substantial inconvenience that would arise if the amendment is allowed. When looking at inconvenience or prejudice, the question is whether the delay caused the inconvenience or prejudice. The Commissioner has not explained how the inconvenience is any greater now than if the issues the Salehs seek to plead had been raised in their original petition. Yes, time has passed, but there are no claims of evidence or witnesses no longer being available. The Commissioner is in no worse position than if these issues had been plead initially. Accordingly, it is
ORDERED that the Salehs' Motion for Leave to File First Amended Petition, filed April 6th, 2021, is granted.