Nolte v. Commissioner
| Decision Date | 01 February 1995 |
| Docket Number | Docket No. 953-86. |
| Citation | 69 T.C.M. 1828 |
| Parties | Ronald A. and Carol D. Nolte v. Commissioner. |
| Court | U.S. Tax Court |
Avram Salkin, 9150 Wilshire Blvd., Beverly Hills, Calif., for the petitioners. Roger Kave, for the respondent.
This case was assigned to Special Trial Judge Larry L. Nameroff pursuant to section 7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.
NAMEROFF, Special Trial Judge:
This case is before us on the Court's Order to Show Cause why a decision should not be entered in this case. Respondent determined deficiencies in petitioners' 1980 and 1981 Federal income taxes in the respective amounts of $13,369.76 and $55,638.54. Respondent also determined that petitioners are liable for an increased rate of interest attributable to a tax-motivated transaction under section 6621(c). In the Answer to the petition, respondent asserted that petitioners were liable for the additions to tax for negligence pursuant to section 6653(a) for 1980 and section 6653(a)(1) and (2) for 1981.
This case involves adjustments flowing from petitioners' participation in commodity straddle transactions through the commodities brokerage firm F.G. Hunter & Associates, Inc. (hereinafter referred to as F.G. Hunter). Petitioners recorded the results of their straddle trading through F.G. Hunter on their 1980 and 1981 tax returns as follows:
Explanation 1980 1981
Ordinary loss from
cancellation of
Gold Futures
Contracts ($37,791.28) ($70,356.93)
Short-term capital
loss from sale of
Gold Futures
Contracts (8,500.00)
Long-term capital
gains from sale of
Gold Futures
Contracts $111,760.00
In the notice of deficiency dated November 25, 1985, respondent disallowed the claimed ordinary losses described above and further determined that petitioners had a net short term capital gain of $111,760 and no long term capital gain.
In Ewing v. Commissioner [Dec. 45,018], 91 T.C. 396 (1988), affd. without published opinion 940 F.2d 1534 (9th Cir. 1991), the test case for the F.G. Hunter transactions, this Court found that the transactions were not primarily for profit, and, therefore, alleged losses could not be deducted as ordinary losses under section 108(a) of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, 98 Stat. 494 (hereinafter section 108(a)). We also found, however, that the taxpayers in Ewing were entitled to offset their losses against their gains pursuant to section 108(c) of DEFRA, as amended by section 1808(d) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2817 (hereinafter section 108(c)). For purposes of this proceeding, petitioners concede that all the losses incurred by them relating to the disposition of F.G. Hunter commodity future contracts were neither incurred in a trade or business nor incurred in a transaction entered into for profit.
On December 13, 1993, respondent filed a Motion For Order to Show Cause why a decision should not be entered against petitioners based upon the opinion in Ewing v. Commissioner, supra. The Court granted respondent's motion, and ordered that petitioners show cause in writing why a decision should not be entered in this case as set forth in respondent's motion.2 On January 13, 1994, petitioners filed a Response to Order to Show Cause alleging that application of the doctrine of equitable estoppel bars respondent from pursuing this matter. Additionally, petitioners contend that, in any event, they are entitled to a tax deduction in 1981 for their net out-of-pocket loss pursuant to the provisions of section 108(c). A hearing was held on these matters on October 17, 1994, at which time petitioners' counsel suggested that a further defense is being considered; viz the running of the period of limitations for assessment for 1980.
Subsequently, on November 7, 1994, petitioners filed a Motion For Leave to Amend the Petition (the motion for leave) and lodged the proposed amendment in which petitioners seek to raise, for the first time, the defense that the statute of limitations prohibits any adjustment for 1980. Petitioners contend that their records reflect that they never executed a Form 872-A, Special Consent to Extend the Time to Assess Tax (Form 872-A) extending the period of limitations for 1980. Petitioners further contend that because the notice of deficiency was issued more than 3 years after the filing of the 1980 tax return, respondent is barred by the statute of limitations from assessing tax.3
Respondent filed an Objection to the motion for leave, contending that 8 years constitutes undue delay for the filing of the motion for leave, especially in view of the fact that petitioners have been represented by counsel since the filing of their petition herein. Respondent further contends that to allow petitioners to amend their petition at this late date would unduly prejudice her. Respondent admits that her files do not contain an executed Form 872-A. However, respondent alleges that the administrative file contains secondary evidence that a Form 872-A was, in fact, executed.
We will first consider whether to permit petitioners to amend their petition to raise the statute of limitations issue, for granting of the motion for leave would necessitate further proceedings. If we deny petitioners' motion for leave, we will then consider: (1) Whether respondent should be equitably estopped from having the proposed decision entered in this case; if not, (2) whether, pursuant to section 108(c), petitioners are entitled to a net out-of-pocket loss deduction in the amount of $4,888.21 from their F.G. Hunter straddle transactions.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference. At the time of the filing of the petition herein, petitioners resided in Long Beach, California. Petitioner Ronald A. Nolte (hereinafter referred to as petitioner) is an attorney, duly licensed to practice in the State of California. At all times relevant herein, petitioner was employed as an attorney by the William Morris Agency, although he is not a tax attorney.
Rule 41(a) provides that, . Respondent served the answer in this case on April 3, 1986. Therefore, since respondent objects to the proposed amendment, petitioner requires leave of the Court to amend the petition.
Rule 41(a) further provides that leave to amend "shall be given freely when justice so requires." This Court has looked to cases decided under Rule 15(a) of the Federal Rules of Civil Procedure (Fed. R. Civ. P.) for guidance on the interpretation of Rule 41(a). Kramer v. Commissioner [Dec. 44,352], 89 T.C. 1081, 1084-1985 (1987). Like Rule 41(a), Fed. R. Civ. P. 15(a) mandates that leave to amend "shall be freely given when justice so requires." Although the rule reflects a liberal attitude toward amendment, the leave petitioners seek is not a matter of right, but is within the discretion of the Court. In Foman v. Davis, 371 U.S. 178, 182 (1962), the Supreme Court stated that leave to amend may be inappropriate in cases where there is:
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 the amendment, etc. * * *
Accordingly, an untimely amendment may properly be denied where there is no excuse for delay and there is prejudice or substantial inconvenience to the adverse party. See Manzoli v. Commissioner [Dec. 45,521(M)], T.C. Memo. 1989-94, affd. [90-1 USTC ¶ 50,290] 904 F.2d 101 (1st Cir. 1990).
As stated earlier, the notice of deficiency was dated November 25, 1985. The petition was filed on January 10, 1986. A notice setting this case for trial on February 29, 1988, was issued by the Court on September 29, 1987. Thereafter, the parties filed a joint motion to continue, contending that this case was similar to the test cases currently under consideration by the Court, and that the final disposition of the test cases may result in a resolution of this case without trial or at least materially shorten the required trial time. The motion to continue generally was granted. Nothing further occurred in this case until the filing of respondent's motion to show cause described above. At no time was the Court ever advised of a possible statute of limitations defense, until the matter was suggested by petitioners' counsel at the hearing.
Under these circumstances, we are not persuaded that justice would be served by the allowance of the proposed amendment. Petitioners, who have always been represented by counsel since the filing of their petition, have not set forth any convincing reason as to the delay for the filing of the motion for leave. Moreover, petitioners' proposed amendment would substantially inconvenience and unfairly prejudice respondent. Amendment of the petition would require respondent to locate witnesses to testify about events occurring more than 8 years ago regarding the alleged execution of the Form 872-A for 1980. Accordingly, we will deny petitioners' motion for leave to amend their petition.
We will therefore consider whether respondent should be equitably estopped from pursuing the deficiency resulting herein (and, presumably, recognizing the overpayment).
On April 14, 1986, respondent assessed the...
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