Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00391/USCOURTS-casd-3_16-cv-00391-0/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 28:1346rc Recovery of IRS Tax

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF CALIFORNIA 

DANNY NGUYEN, 

Plaintiff,

v. 

UNITED STATES OF AMERICA, 

Defendant.

 Case No.: 16cv00391 JAH - DHB 

ORDER DENYING PLAINTIFF’S 

MOTION TO AMEND [Doc. No. 20] 

 Pending before the Court is Plaintiff’s motion for leave to file a second amended 

complaint. Defendant opposes the motion. For the reasons discussed below, the Court 

DENIES Plaintiff’s motion for leave to amend. 

BACKGROUND

 Plaintiff originally filed a complaint on February 15, 2016, and filed a First 

Amended Complaint (“FAC”) on July 26, 2016, seeking a refund of a tax return preparer 

penalty erroneously assessed under 26 U.S.C. section 6695(g). Plaintiff alleges the Internal 

Revenue Service (“IRS”) assessed a penalty of $22,000 for 44 returns it contends violated 

the due diligence requirements of section 6695(g). Complaint ¶¶ 11-13. Plaintiff alleges 

he paid $500 for one of the “divisible” penalties. Id. ¶ 22. On August 9, 2016, Defendant 

filed a motion seeking to dismiss the causes of action involving the 43 penalties not paid 

by Plaintiff for lack of subject matter jurisdiction. Finding section 6695(g) penalties fall 

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outside the divisible tax exception, and, therefore, full payment must be made to obtain 

refund jurisdiction over the remaining 43 penalties, the Court granted the motion to dismiss 

and directed Plaintiff to identify the individual return that corresponded to the penalty he 

paid. 

 After Plaintiff failed to identify the return and took no action on the case for many 

months, the Court issued an order to show cause why the action should not be dismissed 

for his failure to comply with the Court’s order directing him to identify the individual 

return and failure to prosecute the action. In response to the order to show cause, the parties 

filed a joint status report explaining Plaintiff made a $22,933.01 payment to the IRS for 

payment of the 43 penalties on April 25, 2017, and sent a claim for refund on April 26, 

2017. Plaintiff also filed the pending motion for leave to amend. The Court vacated the 

order to show cause and set a briefing schedule and hearing date on Plaintiff’s motion. 

Defendant filed an opposition on November 29, 2017. Plaintiff did not file a reply. Finding 

the matter suitable for disposition without oral argument, the Court vacated the hearing and 

took the motion under submission. 

DISCUSSION

I. Legal Standard

 A party may amend a pleading once as a matter of course within 21 days after serving 

a pleading or 21 days after service of a responsive pleading or motion, and may otherwise 

amend by leave of court. Fed.R.Civ.P. 15(a). Granting leave to amend rests in the sound 

discretion of the trial court. International Association of Machinists & Aerospace Workers 

v. Republic Airlines, 761 F.2d 1386, 1390 (9th Cir. 1985). This discretion must be guided 

by the strong federal policy favoring the disposition of cases on the merits. DCD Programs 

Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). Because Rule 15(a) favors a liberal 

policy, the nonmoving party bears the burden of demonstrating why leave to amend should 

not be granted. Genetech, Inc. v. Abbott Laboratories, 127 F.R.D. 529 (N.D. Cal. 1989). 

 Even though leave to amend is generally granted freely, it is not granted 

automatically. See Zivkovic v. Southern Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 

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2002). Four factors are considered when a court determines whether to allow amendment 

of a pleading. These are prejudice to the opposing party, undue delay, bad faith, and 

futility. See DCD Programs, 833 F.2d at 186; see also Foman v. Davis, 371 U.S. 178, 182 

(1962). These factors are not equally weighted; the possibility of delay alone, for instance, 

cannot justify denial of leave to amend. See DCD Programs, 833 F.2d at 186; Morongo 

Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). The single most 

important factor is whether prejudice would result to the nonmovant as a consequence of 

the amendment. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 

F.2d 1014, 1053 (9th Cir. 1981). 

II. Analysis 

 Plaintiff seeks to amend his complaint to cure the issue of the Court’s jurisdiction 

over all 44 alleged violations of section 6695(g). Plaintiff maintains he made a payment 

to the IRS, filed a second claim for refund on April 26, 2017, and more than six-months 

have passed with no action by the IRS. 

 Defendant argues the motion is futile as it will not provide the Court jurisdiction 

over the remaining 43 penalties in this action. Specifically, Defendant argues Plaintiff is 

required to file an administrative claim and pay the penalty prior to filing suit to confer 

subject matter jurisdiction. 

 Generally, subject matter jurisdiction is determined by the facts existing at the time 

the action is commenced. See Keene Corp. v. U.S., 508 U.S. 200, 203 (1993); Morongo 

Band of Mission Indians v. California State Bd. of Equalization, 858 F.2d 1376, 1380-81 

(9th Cir. 1988). Jurisdiction cannot be created by amendment if the facts supporting 

jurisdiction did not exist at the outset. See Morongo Band of Mission Indians, 858 F.2d at 

1381. In Northstar Financial Advisors, Inc. v. Schwab Investments, the Ninth Circuit 

found the rule in Morongo “is more nuanced than the inflexibility suggested by its 

language” and determined it does not extend to supplemental pleadings filed pursuant to 

Rule 15(d) of the Federal Rules of Civil Procedure. 779 F.3d 1036, 1046 (9th Cir. 2015). 

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 Here, Plaintiff is not seeking to supplement his pleading but amend his pleading 

based upon events occurring after the date of the commencement of this action, namely his 

payment of the penalty and filing of an administrative claim. Actions for the refund of a 

tax requires the payment of the entire tax prior to filing suit. See Flora v. U.S., 362 U.S. 

145, 150-51 (1960). As such, Plaintiff’s attempt to amend to cure the jurisdictional defect 

is futile. 

CONCLUSION AND ORDER

 Based upon the foregoing, IT IS HEREBY ORDERED: 

 1. Plaintiff’s motion to for leave to file a second amended complaint is 

 DENIED; 

 2. Plaintiff shall identify the individual return corresponding to the penalty that 

 he paid prior to commencing this action on or before February 1, 2018. 

Dated: January 18, 2017 HON. JOHN A. HOUSTON 

 UNITED STATES DISTRICT JUDGE 

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