Opinion
419-20
06-21-2021
Ronald Schlapfer Petitioner v. Commissioner of Internal Revenue Respondent
ORDER
Ronald L. Buch, Judge.
This case is before us on the Commissioner's motion to amend his answer. The Commissioner filed the motion within six months of filing his original answer, and a trial date has not yet been set for the case. The content of the amended answer denies several facts that the Commissioner admitted in his original answer. These facts pertain to issues already in dispute by the parties.
Our rules liberally permit parties to amend their pleadings, unless there is a compelling reason for denial, such as undue delay by the requesting party or unfair prejudice to the opposing party. Because there is no such reason apparent here, we will grant the Commissioner's motion to amend.
BACKGROUND[*]
This case concerns a 2007 gift tax deficiency, which arose as a result of a purported gift of an insurance policy. Mr. Schlapfer purchased the policy in 2006. Initially, he was the sole policyholder, he and his wife were designated as the primary beneficiaries, and their four children were listed as secondary beneficiaries. The crux of the parties' dispute concerns whether Mr. Schlapfer later gifted the policy to his mother, aunt, and uncle for the benefit of his nephews.
Mr. Schlapfer first disclosed the purported gift on a late filed Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, for 2006. He submitted this return to the Commissioner as a 2012 Offshore Voluntary Disclosure Program (OVDP) participant. The body of the return showed that Mr. Schlapfer had not made any taxable gifts during 2006. However, he attached a disclosure footnote, which stated:
A protective filing is being submitted. On July 6, 2006, taxpayer made a gift of controlled foreign company stock valued at $6, 056, 686. Per U.S. treasury regulation 25.2501-1(b), the taxpayer is not subject to U.S. gift tax as he did not intend to reside permanently in the United States until citizenship was obtained in 2008.
Based on the information Mr. Schlapfer provided, the Commissioner initiated an examination of the purported gift. The Commissioner ultimately determined that the gift was completed in 2007 and that there was a gift tax deficiency for that year.
Mr. Schlapfer filed a timely petition requesting review of the Commissioner's determination. In his petition, Mr Schlapfer alleged certain facts, relevantly:
. The 2012 OVDP required him to disregard entities through which undisclosed assets were held, such as a 2006 life insurance policy.
. His 2006 gift tax return was prepared in accordance with the investor control doctrine and the OVDP rules, and it was consistent with his prior filings.
. He included an Offshore Entity Statement as part of his 2006 gift tax return.
The Commissioner partially admitted these facts in his original answer, but he denied that Mr. Schlapfer in fact disclosed the gift of the life insurance policy and denied that Mr. Schlapfer prepared his gift tax return in accordance with OVDP rules. The Commissioner now seeks to amend his answer to deny these facts. Mr. Schlapfer objects to the Commissioner's proposed amendment.
DISCUSSION
A party generally may amend a pleading without leave of the Court, if the amendment is made before a responsive pleading has been filed. Rule 41(a), Tax Court Rules of Practice and Procedure. But after a responsive pleading 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 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). But 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)
We see no reason to deny the Commissioner's motion to amend. His motion was filed within six months of his original answer, and no trial date has been set. Thus, there is no element of undue delay by the Commissioner or unfair surprise to the opposing party that might warrant denial. See Quick v. Commissioner 110 T.C. 172, 179-180 (1998). Nor is there any indication that granting the Commissioner's motion will result in undue prejudice to Mr. Schlapfer. See Ax v Commissioner, 146 T.C. 153, 166-169; Minnick v Commissioner, 611 Fed.Appx. 477, 478 (9th Cir. 2015). The amendment will not result in substantial additional discovery or trial preparation, and it is clear from the parties' pleadings and supporting documents that the issues in dispute have been clearly framed.
For the forgoing reasons, it is in the interest of justice to grant the Commissioner's motion to amend. Accordingly, it is
ORDERED that the Commissioners Motion for Leave to File Amended Answer, filed August 20, 2020, is granted. [*]These facts are stated solely for the purposes of disposing of this motion and are not findings of fact for this case.