T.C. M em o . 2 0 1 8 -9 1

UNITED STATES TAX COURT

J AM ES R. BROW

N AND OPAL FREEM AN, Pet it i on ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 4 9 0 0-1 5. Fi l edJ u n e 2 1 , 2 0 1 8
. Kaci e N.C. Di l l on , fo r p et i t i o n ers . M i ch ael R. Harrel , fo r res p o n d en t
.

M EM ORANDUM OPINION ASHFORD, J u d g e: By

s t atu to ry n o t i ce o f d efi ci en cy d at edNo v em b er 2 4 , 2 0 1 4 , res p on den td et erm i n edd efi ci en ci es o f $ 5 ,5 3 8 an d$ 2 0 ,3 94 i np et it i on ers ’ Fed eral i nco m e t ax fo r t he 2 0 0 9 an d2 0 1 0 t ax ab l e y ears , res pect i v el y . Inth i s s am e
n o t i ce o f d efi ci en cy , res p o n d en tal s o d et erm i n edad d it i on s t o t ax p u rs u an tt o- 2
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[* 2 ] s ect i o n 6 6 5 1(a)(1 ) o f $ 3 , 1 9 2 an d$ 6 ,8 8 1, an dad di t i o n s t o t ax p u rs uan tt o
s ect i on 6 6 5 4 o f $ 17 3 an d$ 15 3 , fo r t h e 2 0 0 9 an d 2 0 1 0 t ax ab l e y ears , res pect i v el y . 1 Th i s cas e i s b efo re t h e Co u rto np et i t i o n ers ’ m ot i o nfo r en try o f d eci s i o n
an d res p on d en t’ s m o t i o n fo r l eav e t o fi l e an am en d m en tt o an s w er, p u rs uan tt o wh i ch res p o nd en t h as l o dg edwi th th e Co u rtan am en d m en tt o an s wer. As
ex p lai n edb el o w , we wi ll d en y p et i t i o n ers ’ m o t i o n an dg ran tres p o n d en t ’ s m o t i o n (an dfi l e res p o n d en t’ s l o d g edam en d m en tt o an s w er). Back gro u n d Th e fo l l o w i n g fact s are d eri vedfro m th e p art i es ’ p l ead i n g s , m o t i o np ap ers , an d th e t es ti m o n y an d ex h i bi t s p res en t edata h eari n g th atth e Co u rtco n du ct ed , as d i s cu s s edb el o w, wi th res pect t o the p art i es ’ m o t i o n s . Pet it i o n ers res i d edi n Ari zo n a atth e t im e t h e p et i t i on was fi l edwi th th e Co u rt
. Wh en p et i t i o n ers fai ledt o t i m el y fi l e Fed eral i n co m e t ax retu rn s fo r t h e 2 0 0 9 an d2 0 1 0 t ax ab l e y ears , th es e y ears were s el ect edfo r an In tern al Rev en u e Serv i ce (IRS) ex am i n at i o n . Duri n g th e ex am i n at i o n , o nJ u n e 2 , 2 0 1 4 , p et i t i o n ers fi led j o i n tFed eral i n co m e t ax retu rn s fo r t h es e y ears .

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o nreferen ces are t o th e In t ern al Rev enu e Co de (Co d e) i n effect fo r t h e y ears ati s s u e, an dal l Ru l e referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re. So m e m o net ary am o u n t s are ro u n dedt o th e n eares td o ll ar.- 3
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[* 3 ] Onth e 2 0 0 9 jo i nt retu rn p et i t i o n ers rep o rt eda t ax l i ab i l i ty o f $ 9 ,0 2 8 an da b al an ce du e (i
. e., an u n d erp aym en to f t ax ), aft er ap pl icat i o no f refu n d ab l e cred i t s t o t al i n g $ 1 ,8 0 0 , o f $ 7 ,2 2 8 . Onth e 2 0 1 0 jo i n treturn p et i t i o ners rep ort eda t ax l i ab i l i ty of $ 8 , 61 6 an da b al an ce du e (i .e., an u nd erp aym en t o f t ax ), aft er ap p li cat io n o f refu n d ab l e cred it s t o t al i n g $ 1 ,4 8 7 , o f $ 7 ,1 2 9 . Pet i t io n ers rem i t t ed
n o p aym en twi th ei th er ret u rn . Ata t i m e n o tes t ab l i s h edb y th e reco rdb efo re t he i ss u an ce o f t h e No v em b er 2 4 , 2 0 1 4 , n o t i ce o f d efi ci en cy , res p o n d en tas s es s ed the rep o rt edu n d erp aym en t s o f t ax p u rs u an tt o s ect i o n 6 2 0 1(a)(1 ). Al s o b efo re t h e i s su an ce o f t h e n o t i ce o f d efi ci en cy

an dp u rs u an tt o s ect i o n s 6 2 0 1 (a)(1 ) an d6 6 6 5(b ), res p on d en tas s es s ed ad d it i o n s t o t ax fo r fai lu re t o t i m el y p ay u n d er s ect i o n6 6 5 1(a)(2 ) o f $ 1 , 8 0 7 an d $ 1 ,5 8 6 , fo r 2 0 0 9 an d 2 0 1 0, res p ect i v el y . 2 Th e 2 0 1 0 s ect io n 6 65 1 (a)(2 ) ad d i t i o n t o t ax as s es s m en twas actu al ly a p art i al as ses s m en t
. Pet i t i o n ers ’ t o tal l i ab i l i ty fo r th ats ect i o n 6 6 5 1(a)(2 ) ad d it i o n t o t ax i s $ 1 ,7 8 2 ; acco rd i n g l y , th e accru ed b u t
u n as ses s edp o rt i o n o f t h i s ad d i t i o nt o t ax i s $ 1 9 6. Res p o nd en td i dn o tm ak e
as s es s m en t s fo r fai l u re t o t im el y fi l e ret u rn s u n der s ect i o n6 6 5 1 (a)(1 ) an dfai l u re t o m ak e es t i m at edt ax p aym en ts u n d er s ect i o n6 6 5 4 fo r 2 0 0 9 o r 2 0 1 0.

2 Res p o n d en tap p aren t l y

as s es s ed the 2 0 10 ad d it i on t o t ax o f $ 1 ,5 86 o n Au g u s t1 1 , 2 0 1 4 , an dth e 2 0 0 9 ad d i ti o n t o t ax o f $ 1 ,8 0 7 o nSep t em b er 2 2 , 2 0 1 4
.- 4
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[* 4 ] Res p o n d en tco n cl ud edth e ex am i n at i o n, d et erm i ni n g d efi ci en ci es fo r 2 0 0 9
an d 2 0 1 0 as a res ul t o f ad j u s t m en t s h e m ad e t o p et i t i o n ers ’ 2 0 0 9 an d2 0 1 0 Sch edu l es E, Sup p lem en t al In co m e an dLo ss , p ert ai n i n g t o a p art n ers hi p i nwh i ch th ey h adan i n t eres t . Res p o n d en tal s o d et erm i n edth atad d it io n s t o t ax fo r fai l u re t o t im el y fi l e ret u rn s u n der s ect i o n6 6 5 1 (a)(1 ) an dfai lu re t o m ak e es t i m at edt ax p aym en t s u n d er s ect i o n 6 6 5 4 fo r 2 0 0 9 an d2 0 1 0 s h o u l d b e i m p o s ed . Th e No v em b er 2 4 , 2 0 1 4 , n ot i ce o f d efi ci en cy i s s uedt o p et it i on ers refl ect s th o s e d et erm i n at i o n s. Acco rd i ng t o th i s n o ti ce o f d efi ci en cy , th e s ect i o n6 6 5 1 (a)(1 ) ad d i t i o n s t o t ax fo r 2 0 0 9 an d 2 0 1 0 were co m p u t edo nth e b as i s o f t h e n etam o u n t s du e (i .e., p et i t i o n ers ’ t o tal co rrect edl i ab i l i ty m in u s al l o wab l e p aym en t s o no r b efo re t h e du e d at e o f each y ear’ s retu rn 3 ); n o s ep arat e al l o cat i o n was s etfo rt h i n t h e n ot ice as t o wh atp o rt i o n o f t h e s ect i o n 6 6 5 1 (a)(1 ) ad d i t i o nt o t ax fo r each y ear was at tri b u t ab l e t o (1 ) p et i t i o n ers ’ s el f-rep o rt edt ax l i ab i l i ty an d(2 ) th e d et erm i n ed d efi ci en cy . Th e s ect io n 6 65 4 ad d i t i o ns t o t ax fo r 2 0 0 9 an d2 0 1 0 were co m p u t ed
o n th e b as i s o f t h e u n d erp aym en t s o f t ax p et i ti o n ers rep o rt edo nth e ret u rn s fo r

3 In th i s cas e, fo r 2 0 0 9 , th e al l o wedp aym en t s were t h e rep o rt edad d it i o n al ch i l dt ax cred itan dm ak i n g wo rkp ay an dg o v ern m en tret i ree cred i t s, an d fo r 2 0 1 0, th e al l owedp aym en t s were t he rep o rt edm ak i n g wo rkp ay an d g ov ern m en tret i ree cred i t s (an dn ot th e rep o rt edad d i t i o n al ch i l d t ax cred i tal s o ).- 5
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[* 5 ] th o s e y ears . Th e n o ti ce co rrect l y l i s t edth e “ [p ] rev io u s l y

as s es s ed/p rev i o u s l y ag reedFai l u re t o Fi l e Pen al ty ” an d t h e “ [p ] rev io u s l y As s es sed/ Prev i o us l y

Ag reed Es t i m at edTax Pen al ty ” fo r 2 00 9 an d2 01 0 as zero an d t h e “ [p ] rev i o us l y
as s es s ed/p rev i o u s l y

ag reedFai l u re t o Pay Pen al ty ” fo r 2 0 1 0 as $ 1 ,5 8 6 , b u t i n co rrect l y

(an d i n ex pl i cab l y ) l i s t edthe “ [p ] rev io u s l y as s es s ed/p rev i o u s l y ag reed Fai l u re t o Pay Pen al ty ” fo r 2 0 09 as zero . OnFeb ru ary 2 3 , 2 0 1 5, p et i t i o n ers t i m el y p et i t i o n edthi s Co u rtfo r red et erm i n at i o n o f t h e d efi ci en ci es an dth e ad d it i o n s t o t ax u n d er s ect i o ns 6 6 5 1 (a)(1 ) an d6 65 4. Al th o u g h p et i t i o ners d i dn o ts p eci fi cal ly co n tes tthei r l i ab i l i ty fo r t h e ad d i t i o n s t o t ax u n d er s ect i on 6 6 5 1(a)(2 ), i nth e “ p ray er fo r rel i ef”
s ect i on i n th ei r p et i t i o n th ey req u es t ed“ [t ] hatth e Co u rt d et erm i n e t h at Pet i t i o n ers
are n o tl i ab l e fo r an y

p en al t i es o r ad d i t i o n s t o t ax fo r t h e cal en d ar y ears en ded Decem b er 3 1 , 2 0 09 an d 2 0 1 0 ”. Pet i t i o n ers al s o d i dn otal l eg e i n t h ei r p et it i o n , an d th ey d o n o tas s erti n th i s p ro ceed i ng , th atwe fi n d an o v erp aym en t o f ei th er t h ei r Fed eral i nco m e t ax es o r t h e ad d i t i o n s t o t ax fo r 2 0 0 9 an d2 0 1 0
. OnAp ri l 2 3 , 2 0 1 5, res p o n d en tt i m el y fi ledan an s wer g en eral l y d en y i n g th e al l eg at i o n s i n p et i t i o n ers ’ p et i t i o n an dm ak i n g n o affi rm at i v e al l eg at i o n s reg ard i n g th e s ect i o n 6 6 5 1 (a)(2 ) ad d i ti o n s t o t ax .- 6
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[* 6 ] Th ereaft er, res po n d en t ’ s co u n s el M i ch ael R. Harrel fo rward edp et i t i o n ers ’
cas e fo r s et t l em en tco n s i d erat i o n t o th e IRS Offi ce o f Ap p eal s (Ap peal s ), an dth e
cas e, o n ce recei vedb y

Ap p eal s , was as s ig n ed t o Ap p eal s Offi cer Dwi g h tKrs tu l ja (AO Krs tu l

ja). Set t l em en td is cu s s i o n s en s u edb et ween AO Krs tu lja an dp et i t i o ners ’
co u ns el Kaci e N.C. Di l lo n. In Ap ri l 2 0 1 6 , ap p ro x i m at el y o n e m o n th b efo re t h e
cas e was s ch edu l edfo r t ri al atth e s es s i o n o f t h e Co u rt co m m en ci n g J u n e 6 , 2 0 1 6 , i n Ph oen i x , Ari zo n a, t hey b el i ev edth atth ey

h adreach eda b as i s fo r s et t l em en t
. AO Krs tu l

ja th en p ro ceed edt o h av e an IRS t ax co m p u t at i o ns p eci al i s tp rep are t ax
co m p u t at i o n s o n th e b as i s o f t he p ut at i ve s et t l em en t. Th es e t ax co m

p u t at i o n s were u l t i m at el y refl ect edo n a Fo rm

5 2 7 8, St at em en t- In co m e Tax Ch an g es , wh i ch s ho wed i n p ert i n en tp artth e fo l l o wi n g
am ou n t s du e fro m

p et i t io ners : Ad di t i o n s t o t ax Tax ab l e y ear Defi ci en cy Bal an ce du e o r o v erp aym en t Sec.

66 5 1 (a)(1 ) Sec.

6 65 4 2 00 9 -0
- -0
- $1 ,8 0 7 $ 17 3 2 01 0 -0
- -0
- 1 ,7 8 2 1 5 3 Acco rd i ng t o th i s Fo rm

5 2 7 8, s i n ce t h ere was n o d efi ci en cy fo r 2 0 0 9 an d 2 0 1 0 , th e s ect i on 6 65 1 (a)(1 ) ad d i t i o n s t o t ax were co rrect l y co m p u t edo n th e b as i s- 7
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[* 7 ] o f t h e u nd erp aym en t s o f t ax p et i t i o n ers rep o rt edo nth ei r d el in qu en tjo i n t retu rn s (i .e., $ 7 ,2 28 fo r 2 0 0 9 an d$ 7 ,1 2 9 fo r 2 0 1 0 ). Th e s ect i o n 6 6 54 ad d i t i o n s t o t ax were co rrect l y

co m p ut edi n th e s am e way

th ey h adb een co m

pu t edi n t h e No v em b er 2 4 , 2 0 1 4 , n ot i ce o f d efi ci en cy , i .e., o n t h e b as i s o f p et it io n ers ’ rep o rt ed
u n d erp aym en t s o f t ax . Th e Fo rm 5 2 7 8 al s o co rrect l y

l is t edth e “ [p ] rev i o u s l y
as s es s ed/p rev i o u s l y

ag reedFai l u re t o Pay Pen al ty ” fo r 2 0 0 9 as $ 1 ,8 0 7 (wh ereas as p rev i o u s l y n ot ed , s ee s up ra p . 5 , th e No v em b er 2 4 , 2 0 1 4 , n o t i ce o f d efi ci en cy l i st edth e am o u n t i n co rrect l y (zero )); th e fo rm , h o w ev er, i n co rrect l y l i st edth e

“ [p ] rev i o u s l y

as s es sed/p rev i o u s l y ag reedFai l u re t o Pay Pen al ty ” fo r 2 0 10 as $ 1 ,4 6 2 (wh ereas as p rev i o u s l y n o t ed , s ee s up ra p . 5 , th e No v em b er 2 4 , 2 01 4 , n o t i ce o f d efi ci en cy

l i st edth e am o u n tco rrect l y ($ 1 ,5 8 6 )). 4 OnAp ri l 1 8 , 2 0 1 6, AO Krs tul ja fax eda co p y

o f t h e t ax co m

p u tat i o n s t o M s . Di l l o n . He al s o i n d i cat edi n th e facs i m i l e t o h er t h ats h e s h o u l d cal l h i m wi th an y qu es ti o n s an dth ath e wo u l dretu rn p et i ti o ners ’ cas e t o M r. Harrel o n Ap ri l 2 0 , 2 0 1 6 . Hav i n g n o th eardan yth in g fu rt h er fro m M s . Di l l on , h e as s um edth ats h e

4 Th e p art i es h av e n o tad dres s edwh y th e l at t er am ou n t d i ffers fro m th ati n th e n o ti ce o f d efi ci en cy , b u tn ei th er p art y rel ies o nth is am o u n t fo r an y p u rp o s e, an d th us we as s um e th at i twas m erel y an i n ad v ert en t erro r. W e al s o n o te fo r t h e b en efi to f t h e p art i es thatth e co m p u t at i o n s ap p ear n o tt o i nco rp o rat e t h e redu ct i o n u n d er s ec. 6 6 5 1 (c)(1 ) p rev en t in g d o ub le-co un t i n g o f ad d i ti o n s t o t ax u n d er b o th s ec. 6 6 51 (a)(1 ) an d(2 ) fo r m o nt h s fo r wh i ch b o th ap pl y .- 8
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[* 8 ] ag reedwi th th e co m p u t at io n s an dh e ret u rn edth e cas e t o M r. Harrel fo r p rep arat i o n o f a s ti p u l at edd eci s i o nd ocu m en t
. Th e cas e was cal ledfro m th e cal en d ar fo r t he t ri al s es s io no f th e Co u rtat Ph o en i x , Ari zo n a, o n J u n e 6 , 2 0 1 6 . M r. Harrel an dM s . Di l l o nap p eared o nb eh al f
o f res po n d en tan dp et i t i o n ers , res p ect i v el y , an di n fo rm edthe Co u rtthatth ey were
u n ab le t o reach an ag reem en to n th e t erm s th ats h o u l db e i n cl u d edi nth e d eci s i o n d o cu m en tan dth atth erefo re a b as i s fo r s et t l em en th ad n otb een reach ed
. Sp eci fi cal l y , th ey d i sag reedas t o th e t reat m en t i nth e d eci s i o nd o cu m en to f t h e ad d it i o n s t o t ax u n d er s ect i on s 6 6 51 (a)(1 ) an d 6 65 4 at tri b u t ab l e t o p et i t i o n ers ’ rep o rt edu n d erp aym en t s o f t ax fo r 2 0 0 9 an d2 0 1 0 , as wel l as th e as s es s eds ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n s t o t ax fo r t h o s e y ears an d th e u n as s es seds ect i o n6 6 5 1 (a)(2 ) ad d it i o n t o t ax fo r 2 0 1 0. It was M r. Harrel ’ s u n ders t an d in g fro m AO Krs tu l

ja th at
as p arto f t h e s et t l em en t p et i ti o n ers ag reedt o b ei n g l i ab l e fo r t h e ad d it i on s t o t ax
u n d er s ect i o n s 6 65 1 (a)(1 ) an d6 6 5 4 at tri b u t ab l e t o th ei r rep o rt edu nd erp aym en t s o f t ax ; acco rd i n g l y , th o se ad d i t io n s t o t ax s h o u l d b e ad dres s edi nth e d eci s i o n d o cu m en t . Itwas al s o M r. Harrel ’ s (i .e., res p on d en t ’ s ) p o s i t i o nth at th i s Co u rt h as juri s d i ct i o n o v er t h e as s es s edan du n as s es s edp o rt i o n s o f t h e s ect i o n6 65 1 (a)(2 ) ad d it i o n s t o t ax , d es p i te t h ei r b ei n g at tri b u t ab l e o n ly t o p et i t io n ers ’ rep o rt ed
u n d erp aym en t s o f t ax an dn o th av i n g b een “ d et erm i n ed ” i nth e No v em b er 2 4 ,- 9
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[* 9 ] 2 0 1 4 , n ot i ce o f d efi ci en cy , an d th atth erefo re t h ey t oo s h o ul db e ad dres s edi n th e d eci s i o n d o cu m en t . M s . Di l l o n ’ s (i .e., p et i t i o n ers ’ ) p o s i t i o nwas thatb ecau s e al l o f t h e ad d i t io n s t o t ax are rel at edo n l y t o p et i t i o n ers ’ rep o rt ed u n d erp aym en t s
o f t ax , th ey

are as s es s ab l e ad d it i o n s t o t ax b ey o n dth e s co p e o f th is Co u rt ’ s juri s d i ct i o n an dth u s s h o u l dn o t , an d can n o t , b e i n cl u dedi nth e d eci si o n d o cu m en t ; acco rd i n g l y , th e Co u rts h o u lden t er a d eci si o n i m p l em en t i n g th e p art i es ’ s up p o s edag reem en tth at(1 ) t h ere i s n o d efi ci en cy i nFed eral i n co m e t ax du e fro m n o r o v erp aym en tdu e t o th e p et i t i o n ers fo r 2 0 0 9 an d2 01 0 an d (2 ) t h ere
are n o ad d i t i o n s t o t ax u n d er s ect i o n s 6 6 5 1 (a)(1 ) an d6 6 54 at tri b u t ab l e t o d efi ci en ci es fo r 2 0 0 9 an d 2 0 10
. Aft er b ei n g h eard an d i n s up p o rto f t h ei r res p ect i v e p o si t io n s , M s . Di l l o n fi led a m o t i o n fo r en try

o f d eci s i o no n p et i t i o n ers ’ b eh al f an dM r. Harrel fi l eda
m o ti o n fo r l eav e t o fi l e an am en d m en tt o an s w er (an dl o d g edan am en d m en tt o
an s wer) o n res p o nd en t ’ s b eh al f. At t ach edt o th e m o ti o nfo r en try o f d eci s i o nwas , i n t er al i a, a d raftd eci s i o n s et ti n g fo rt h th e afo rem en ti o n eds up po s edag reem en t
acco rd i n g t o M s . Di l l o n . Th e am en d m en tt o an s wer s o u g h t t o al l eg e p et i ti o n ers ’ l i ab i l i ty fo r (1 ) th e p rev io us l y as s es seds ect i o n6 6 5 1 (a)(2 ) ad d i t i o nt o t ax at tri b u t ab l e t o th ei r 2 0 0 9 rep o rt edu n d erp aym en to f t ax o f $ 1 ,8 0 7 an d(2 ) t h e- 1 0 -

[* 1 0 ] p rev i o u s ly

as s es sed an d u n as s es s eds ect i o n6 6 51 (a)(2 ) ad di ti o n s t o t ax at tri b u t ab l e t o th ei r 2 0 1 0 rep o rt edu n d erp aym en to f t ax t o t al i n g $ 1 ,7 8 2
. Lat er, o n J u n e 6 , 2 0 1 6 , th e Co urth el da h eari n g wi th reg ardt o th e p art i es ’
m o ti o n s. Adm i t t edi nt o ev i d en ce at th e h eari n g was (1 ) a co p y o f t h e Fo rm

5 2 7 8, (2 ) t h e No v em

b er 2 4 , 2 0 1 4 , n ot i ce o f d efi ci en cy , an d (3 ) a Feb ru ary 2 4 , 2 0 1 6 , em ai l fro m

M s . Di l lo n t o M r. Krs tu l ja s t at i n g i np ert i nen tp artthat“ I t hi n kwe are i n ag reem en t o n th i s o n e. Th e t ax p ay er wi l l accep ta s et t l em en t b as edup o nth e
am en d edK-1 . I wi l l n o tco m e fo r o u r m eet i n g t om o rro w. I wi l l g i v e y o ua cal l t o m o rro w t o fi nal i ze o u r d i scu ss i o ns o we can cl o s e t h e cas e.” No wi tn es ses t es t i fi edfo r p et i t i o ners . AO Krs tu lja t es t ifi edfo r res p o n d en t reg ard i n g h i s h an dl i n g o f t h e cas e, i n cl u d i n g h i s d i s cu s s i o n s wi th M s . Di l l o n . Duri n g h is t es t i m o ny , h e ackn o w l ed g edth ath i s d i s cu ss i o n s wi th M s . Di l lo nfo cu sedo n
res o l vi n g th e ad

ju s tm en t s t o i n co m e s etfo rt h i nth e No vem b er 2 4 , 2 01 4 , n o t i ce o f d efi ci en cy ; th ey d i dn o td i s cu s s the ad d it i on s t o t ax . Fo l l owi n g th e h eari n g an dp u rs u an tt o an o rd er o f t h i s Co u rt , each p art y fi led a wri t t en res p on s e o b ject i n g t o th e o th er’ s m o t i o n.- 1 1 -

[* 1 1 ] Di s cu s s i on I. Pet i t i o ners ’ M o ti o n fo r En try o f Deci s i o n Anag reem en t t o s et tl e a cas e b efo re t h i s Co u rti s a co n tract ; acco rd i n g l y , we ap p l y g en eral p ri n ci p l es o f co n tract l aw wh en cal l edo n t o res o l v e wh et h er t h e l i ti g an t s h av e reach eda s et t l em en t
. Do rch es t er In dus ., In c. v . Co m m i s s io ner, 1 0 8 T.C. 3 2 0 , 3 3 0 (1 9 9 7 ), aff’ d , 2 0 8 F.3 d 2 0 5 (3 dCi r. 2 0 0 0 ). Ina cas e p en d i n g b efo re th i s Co u rt , a s et t l em en tag reem en tm ay b e reach edb y

co rres p o n d en ce, i n th e ab s en ce o f a fo rm al d o cu m en ts u ch as a cl o s i ng ag reem en tu nd er s ect i on 7 1 2 1
. M an k o v . Co m

m i s s i on er, T.C. M em o . 1 9 9 5 -1 0 . A p rereq u i s i t e t o th e fo rm at i o n o f
an ag reem en ti s th atth ere b e a “ m eet i n g o f t h e m i n ds ”, i .e., an o b ject i ve
m an i fes t at i o n o f m

utual as s en tt o i t s es s en t i al t erm s . Do rch es t er In du s ., In c. v . Co m m i s s i o n er, 1 0 8 T.C. at3 3 0; Kro n i s h v . Co m m i s s i o n er, 9 0 T.C. 6 8 4 , 6 9 3 (1 9 8 8); Sm i th v . Co m

m i s s i o n er, T.C. M em o . 2 0 0 9 -3 3 ; Es t at e o f Hal d er v . Co m m i s s i o n er, T.C. M em o . 2 0 0 3 -8 4 ; M an k o v . Co m m i s s i o ner, T.C. M em o. 1 9 9 5
- 1 0 . Th i s p ri n ci p l e ap p l i es ev enwh ere an es s en t i al t erm i s o ne o v er wh i ch th e Co u rtl ack s juri s d i ct i o n. See Sm i th v . Co m m is s io n er, s l i p o p. at 1 6-1 7 . Th e d et erm i n at i o n o f wh et h er t h ere was a m eet i ng o f t h e m in d s s uffi ci en tt o co n s t i tu te
a co n tract i s o n e o f fact . Es t at e o f Hal d er v . Co m m i s s i o n er, s li p o p . at6 (ci t i n g- 1 2 -

[* 1 2 ] U.S. Ti t an , In c. v . Gu an g zh o u Zh en Hu a Sh i p p in g Co ., 2 41 F.3 d 1 3 5 , 1 4 6 (2 dCi r. 2 0 0 1)). Onth e b as is o f th e ev i d en ce b efo re u s , we fi n d thatth e p art i es d i dn o treach
a s et t lem en tb ecau s e t h ere was n ev er a m eet i n g o f t he m i n d s as t o s ev eral o f i t s
es s en t i al t erm s --t h e ad d i t i o n s t o t ax at tri bu t ab le t o p et i t i on ers ’ rep o rt ed
u n d erp aym en t s o f t ax fo r 2 00 9 an d2 0 1 0 u n d er s ect i o n s 6 6 51 (a)(1 ) an d (2 ) an d 6 6 5 4 . In d eed , p et i t i o n ers ackn o wl ed g e t h i s d i s ag reem en t i nth ei r m o t io n , as k i n g
u s o n th e o n e h an d t o en t er a d eci s i o nad ju d i cat i n g ex cl u s i v el y

th o s e m at t ers o n wh i ch th e p art i es ag ree (i .e., th e 2 0 0 9 an d 2 0 1 0 d efi ci en ci es an dthe ad d i t io n s t o t ax u n der s ect i o n s 6 6 5 1 (a)(1 ) an d6 6 5 4 at tri b u t ab le t o th os e d efi ci en ci es ) an d
as s ert i n g o n th e o th er h an dth atth e m at t ers o n wh i ch th ey d i s ag ree are o u t s i d e t h e
s co p e o f o u r ju ri s di ct i o n . Th e p art i es , h o wev er, m us tag ree o nb o th th e i s su es t o b e s et t ledan dth e res o l u t i on o f th o s e i s s ues ; we wi l l n o t en ter a d eci s i o no ns o m e i s su es fo r wh i ch res o l u t io n s are ag reedi f t h e p art i es d o n o tag ree t hatth o se are al l
o f t h e i s su es th atth ey

s eekt o res ol v e. Acco rd i n g l y , we fi n dth atth e p art i es d i d
n o treach a s et t l em en tag reem en t , an dwe wi l l d en y p et i t i o n ers ’ m o t i o n . 5

5 Gi v en th at we wi l l g ran tres p o n d en t’ s m o t i o n , o u r reas o n s fo r wh i ch we n ex t d is cu s s h erei n , s ee i n fra p p . 1 3 -2 1 , p et i t i o n ers ’ m o t i o ni s al s o p rem atu re.- 1 3 -

[* 1 3 ] II. Res p o nd en t ’ s M o t i o nfo r Leav e To Fi l e anAm en d m en t t o An s wer Am en dm en to f p l ead i n g s i s ad dres sedi nRu l e 4 1 (a), wh i ch , as rel ev an t h ere, p ro v i des th at“ a p art y m ay am en d a p l ead in g o nl y

b y l eav e o f Co u rt * * * , an d l eav e s h al l b e g i v en freel y wh ere ju s t i ce s o req u i res .” Res p o n d en ts eek s t o am en dh i s an s wer b y l eav e o f Co u rtt o i n cl ud e t h e
s ect i on 6 6 5 1 (a)(2 ) ad d it i o n s t o t ax at tri b u t ab l e t o p et i t i o n ers ’ rep ort ed
u n d erp aym en t s o f t ax fo r 2 00 9 an d2 0 1 0 . Pet i ti o n ers o bjectt o o u r g ran t i ng
res p o n d en t’ s m o t i o n p ri m ari l y o n th e g ro u n dth atth e Co u rtl ack s juri s d i ct i o no ver th es e ad d i t i o n s t o t ax . Pet i t i on ers al s o m ai n t ai nth at res p on d en tl ack s a ju s t i fi ab l e
reas on fo r s eek i ng t o am en d h i s an s wer ats u ch a l at e d at e (o n t h e fi rs td ay o f t h e tri al s es s i o n ) an d t h atal l o wi ng res p o n d en tt o d o s o wo u l d u ndu l y p reju d i ce t h em . 6 W e wi l l ad dres s each co n t en t i o n i ntu rn .

6 Pet i t i on ers al s o as s erti n th ei r res p o n se t o res p o n d en t ’ s m o t i on th at (1 ) res ju d i cat a wi th res p ectt o t h e s ec. 6 6 5 1 (a)(2 ) ad d it i o n s t o t ax i s i n ap p l i cab l e h ere b ecau s e h av in g juri s d i ct i o n o v er an i s s u e i s a p rereq u i s i t e t o fi nd i n g th atres ju d i cat a ap p li es an d(2 ) i f res p on d en t ’ s m o t io ni s g ran ted , res p o n d en ts h ou l db ear th e b u rd en o f p ro o f as t o th e s ec. 6 6 5 1 (a)(2 ) ad d i t i o ns t o t ax . Inth e l i g h to f o u r res o l ut i o n o f res po n d en t ’ s m o t i o n , we s ee n o n eedt o ad dres s t h es e as s ert i o n s at th i s t i m e.- 1 4 -

[* 1 4 ] A. Ou r J u ri s di ct i o n Ov er Sect i o n6 6 5 1 (a)(2 ) Ad d i t i o n s t o Tax

At tri b u tab l e t o an Am o u n tSh o wno na Tax p ay er-Fi l edRetu rn Th i s Co u rt , l i k e al l Fed eral co u rt s , i s a co u rto f l i m i t edjuri s d i ct io n ; o u r juri s d i ct i o n an di t s ex t en t are ex p l i ci t l y p ro v i d edb y s t atu t e. Sec. 7 44 2 ; Naft el v . Co m m i s s i o n er, 8 5 T.C. 5 27 , 5 2 9 (1 9 8 5 ); Brem an v . Co m m i s s i o n er, 6 6 T.C. 6 1 , 6 6 (1 9 7 6). W e h av e ju ri s di ct i o n t o red et erm i n e a d efi ci en cy i ni n co m e, es t at e, g i ft , o r cert ai n ex ci s e t ax es wh en the Co m m i s si o n er i ss u es t o a t ax pay er a n o ti ce o f d efi ci en cy

th atrefl ect s a d efi ci en cy i nres p ecto f an y o f t h o se t ax es an dth e t ax p ay er t i m el y

p et i t i o n s t h i s Co u rtfo r red et erm i n at i o no f th atd efi ci en cy . See
s ecs . 6 2 11 -6 2 1 3 ; Ru le 1 3 (a), (c). Bu ti nth e cas e o f ad d i ti o ns t o t ax , an d
s p eci fi cal l y

as rel ev an th ere, an ad d i t i o nt o t ax u n d er s ect i o n6 6 5 1 (a)(2 ) at tri b u t ab l e t o an am o un ts h o wno na t ax p ay er-fi l ed retu rn , th e k ey s ect i o n o f t h e Co d e ad dres si n g wh et h er we h av e ju ri s d i ct i o no v er s u ch ad d it i o n s t o t ax i s s ect i o n 6 2 1 4 (a). Si n ce 1 9 8 6 , s ect i o n 6 2 14 (a) h as p ro v i d edas fo l l o ws : SEC. 6 2 14 (a). J u ri s d i ct i o nas t o In creas e o f Defi ci en cy , Ad d it i on al Am o un t s , o r Ad d i t i o n s t o th e Tax .--Ex cep tas p ro v i dedb y s ect i o n 7 4 6 3, the Tax Co u rts h al l h av e ju ri s d i ct i o n t o red et erm i n e t h e co rrect am o u n to f t h e d efi ci en cy ev en i f t h e am ou n ts o red et erm in ed i s g reat er t h an th e am o u n to f t h e d efi ci en cy , n ot i ce o f wh i ch h as b een m ai l edt o th e t ax p ay er, an dt o d et erm i n e wh et h er an y ad d i t i o n al am o u nt , o r an y

ad d it io n t o th e t ax s h o u ldb e as s es s ed , i f cl ai m- 1 5 -

th erefo r i s as s ert edb y

th e Secret ary

ato r b efo re t h e h eari n g o r a reh eari n g . [Em

p h as i s ad d ed .] Pri o r t o 1 98 6 , s ect i o n 6 2 1 4 (a) d i d n o t co n t ai nth e p hras e “ o r an y ad d i t i o n t o th e t ax ” b u ts i m

pl y p ro v id edi n p ert i n en tp artth at “ th e Tax Co urts h al l h av e juri s d i ct i o n t o red et erm in e th e co rrect am o un to f th e d efi ci en cy * * * an dt o d et erm i n e wh eth er an y

ad d it i o n al am o un t , o r ad d i ti o nt o th e t ax s ho u l db e
as s es s ed ”. (Em

p h as i s ad d ed .) In Es t at e o f Yo un g v . Co m m i ss i o n er, 8 1 T.C. 8 79 , 8 8 5 (1 98 3 ), we i n t erp ret edthe p re-1 9 8 6 p ro v i s io n , h o l d i n g th atth e p ro vi s i o nd i d
n o tco nfer ju ri s d i ct i o n up o n t h e Co u rto v er an y ad d i t io nt o t ax u n d er s ect i o n6 6 51
u n l es s th atad d i t i o n t o t ax i s at tri b u t ab l e t o a d efi ci en cy (an d acco rd i ng l y

s ub ject t o the Co d e’ s d efi ci en cy

p ro cedu res ). 7 Hen ce, we h el du n d er th e fact s o f t h e cas e th atth e d i s p u t edad d it io n t o t ax u n d er s ect i on 6 6 5 1(a)(2 ) m eas u redb y th e am o u n t
o f t ax s h o wno n th e t ax p ay er’ s fi l edretu rn fel l o u ts i de o f t he Co u rt ’ s ju ri s d i ct i o n b ecau s e i ta fo rt i o ri was n o t at tri b ut ab l e t o a d efi ci en cy (an dacco rd i n g l y

n o t
s ub jectt o t h e Co d e’ s d efi ci en cy p ro cedu res ). Fo l l owi n g o u r Op i n i o n i n Es t at e o f Yo u ng , Co n gres s am en d eds ect i o n 6 2 1 4 (a) b y

i n s ert in g t he wo rd“ an y ” b efo re t h e wo rd s “ ad d i t io nt o th e t ax ”. See [* 1 5 ]

7 Atth att i m e, t h e Co d e’ s d efi ci en cy p ro cedu res p ert ai n i n g t o ad d i t i o n s t o t ax were s etfo rt h i n s ec. 6 6 5 9. Co n g res s red es ig n at eds ec. 6 6 5 9 as s ec. 6 6 6 0 i n 1 9 8 1 , th en red es i gn at ed s ec. 6 6 6 0 as s ec. 6 66 2 i n 1 9 8 2 , an dth en l as t l y red es i g n at eds ec. 6 6 6 2 as s ec. 6 6 6 5 i n 1 98 9
.- 1 6 -

[* 1 6 ] Tax Refo rm

Acto f 1 98 6 , Pub . L. No . 9 9-5 1 4 , s ec. 1 55 4 (a), 1 0 0 St at . at 2 7 5 4 . W i th th is am en d m en t , Co n g res s ex pl i ci t l y s o u g h tt o o verru l e o u r h o l d i n g i n Es t at e o f Yo u n g an d cl ari fy thatth e Tax Co u rth as juri s d i ct i o no v er ad d i ti o n s t o t ax u n der s ect i o n 6 6 5 1 (a)(2 ) “ fo r fai l u re t o p ay an am o u n ts h o wno nth e retu rn wh ere t h e Tax Co u rtal read y h as juri sd i ct i o n t o red et erm i n e a d efi ci en cy i nt ax wi th res p ect t o th atreturn . ” 8 See H.R. Co nf. Rep t . No . 9 9 -8 4 1 (Vo l . II), atII-8 0 4 (1 9 8 6), 1 9 86 -3 C.B. (Vo l . 4 ) 1 , 8 0 4 ; S. Rep t . No
. 9 9 -3 1 3, at2 00 (1 9 8 6 ), 1 9 8 6 -3 C.B. (Vo l . 3 ) 1 , 2 00
. Si n ce t h atam en d m en t , o u r o pi n i o n s g en eral l y h av e b een co n s is t en twi th Co n g res s ’ i n t en t . See Lee En g ’ g Sup p l y Co . v . Co m

m is s i o n er, 1 0 1 T.C. 1 8 9 , 1 9 6
n .5 (1 9 9 3 ) (ack n o wl ed g in g thatth e 1 9 8 6 am en d m en to f s ect i on 6 2 1 4 (a) g ran t s th e Tax Co u rtjuri sd i ct io n o ver ad d i t i o n s t o t ax u n d er s ect i o n6 6 5 1 (a)(2 ) i na d efi ci en cy

p ro ceed in g ); Es t at e o f Hi n z v . Co m m i s s i o n er, T.C. M em o. 2 0 00 -6 , s l i p

8 W e al s o no t e t h atCo n g res s d el ib erat el y d i dn o tam en d s ec. 6 6 6 5 . See H.R. Co n f. Rep t . No . 9 9-8 41 (Vo l . II), atII-8 0 4 (1 9 8 6), 1 98 6 -3 C.B. (Vo l . 4 ) 1 , 8 0 4 (“ As i d e fro m

res o l v i n g * * * [t h e s ec. 6 6 5 1 (a)(2 )] juri s d i ct i o n al i ss u e, t h e p ro v is i o n [i .e., am en d eds ec. 6 21 4 (a)] d o es n o tal ter t h e ju ri s di ct io n o f th e Tax Co u rt . Th e p ro v i s i on i s n oti n ten d edt o ch an g e ex i s t i n g l aw i n s o far as (1 ) t h e s ect i on 6 6 5 1 (a)(1 ) l at e fi l i n g ad d i t i o nt o t ax , o r (2 ) t h e p ro cedu re fo r as s es s i n g ad d it i o n s t o t ax u n d er s ect i on 6 6 6 2 (b ) * * * [i .e., then s ec. 6 6 65 .] ”). As a res u l t , Co n g res s h as s eem i n g l y creat edan i n co n s i s t en cy i no u r ju ri s di ct i o ni na d efi ci en cy

p ro ceed in g o ver ad d i t io n s t o t ax u n der s ecs . 6 6 5 1(a)(1 ) an d (2 ) an d 6 6 5 4 thatare d et erm i n ed(i
. e., m eas u red ) b y th e am o u n to f t ax s h o wno na t ax p ay er’ s return . See i n fra n o t e 1 0
.- 1 7 -

[* 1 7 ] o p . at6 4 (h ol d i n g th at th e Tax Co urth as “ u n d i s p u t ed juri s di ct i o n ” o v er
s ect i on 6 6 5 1 (a)(2 ) ad d it i o n s t o t ax i na d efi ci en cy p ro ceed i n g ); Es t at e o f Nem ero v
v . Co m m i s s i o n er, T.C. M em o . 1 9 9 8 -1 8 6 , s l i p o p . at7 (h ol d i n g thatth e Tax Co u rt
was “ au th o ri zed ” t o d eci d e a s ect i o n6 6 5 1 (a)(2 ) ad d i t i o nt o t ax as ses s ed o nth e b as i s o f t h e t ax rep o rt edo n the es t at e’ s d el i n qu en tretu rn an dci t i n g the l eg i s l at i v e h i s t o ry t o the 1 9 8 6 am en d m en to f s ect i on 6 2 1 4 (a)); s ee al s o Cru m m ey v . Co m m i s s i o n er, T.C. M em o . 2 0 1 6 -9 , at* 1 2 (h o l d i n g th atth e t ax pay ers ’ d el i n qu en t retu rn s were a b as i s fo r t h e Tax Co u rtt o d et erm i n e t h e ap p l i cab i l i ty o f t h e s ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n s t o t ax an dci t i n g th e Co u rt ’ s o p i n i o n i nEs t at e o f Nem ero v ); cf. Newb y ’ s Pl as t eri n g , In c. v . Co m m i s s i o n er, T.C. M em o . 1 9 9 8 -3 2 0 , s l i p o p . at 4 (h o l d i n g th atb ecau s e t h e Co m m i s s i o n er d idn o t d et erm i n e a d efi ci en cy i nt ax , th e Tax Co u rtl ack edjuri s di ct i o n o v er t he s ect i o n6 6 5 1 (a)(2 ) ad d i t i o nt o t ax , am o n g
o th er ad d i t i o n s ). Pet i t i o ners ci t e Vi n es v . Co m m i s s i o n er, T.C. M em o . 2 0 0 9 -2 6 7 , aff’ d , 4 1 8 F. Ap p ’ x 9 0 0 (1 1 th Ci r. 2 0 1 1 ), i n s up p o rto f t hei r as sert i o n t h atwe l ackjuri s d i ct i o n
o v er t h e s ect i o n 6 65 1 (a)(2 ) ad d i t i o n s t o t ax . Su ch rel i an ce i s m i s p l aced . Th i s M em oran du m

Op in i o n i n Vi n es aro se o u to f a co l l ect i o ndu e p ro ces s (CDP) p ro ceed in g i n wh i ch th e t ax p ay er ch al l en g edh i s u n d erl y i n g l i ab i l it y fo r t h e
s ect i on 6 6 5 1 (a)(2 ) ad d it i o n t o t ax . Inres p o n s e t o an ad vers e n o t i ce o f- 1 8 -

[* 1 8 ] d et erm in at i o n i n the CDP p ro ceed i n g, the t ax p ay er p et i t i o n edth i s Co u rt
. So m e m o n th s l at er t h e IRS i s s u edth e s am e t ax p ay er a n ot i ce o f d efi ci en cy th at i n cl u d edth e s am e t ax ab l e y ear b u t d i d n o t i n cl ud e an y s ect i o n6 6 5 1 (a)(2 ) d et erm i n at i o n . Th e t ax p ay er t h en p et i t i o n edth i s Co u rtwi th reg ardt o th e n o t i ce o f d efi ci en cy . Nei th er p arty rai s edthe s ect io n6 65 1 (a)(2 ) ad d i t i o n t o t ax i n th e d efi ci en cy

p ro ceed in g . Th e d efi ci en cy cas e was d eci d edb efo re t h e CDP cas e i n
an Op i n i o n wh i ch d i dn o tad dres s th e s ect i o n6 6 5 1 (a)(2 ) ad d i t io nt o t ax . Vi n es v . Co m m i s s i o n er, 1 2 6 T.C. 2 7 9 (2 0 0 6). Th e IRS t h ens o u g h tt o i nv o ke res ju d i cat a i n the CDP cas e t o fo recl o s e t h e t ax pay er’ s l o ng s t an d i n g ch al l en ge t o t h e s ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n t o t ax i n th e CDP cas e. InVi n es v . Co m m i s s i o n er, T.C. M em o. 2 0 0 9 -2 6 7 , th e Co urtd ecl i n edt o ap p l y res ju d i cat a i n t h i s m an ner, i n s t ead al l o wi n g th e t ax pay er’ s ch al l en g e t o t h e s ect i o n 6 6 5 1 (a)(2 ) ad d i ti o nt o t ax t o g o fo rwardi n th e CDP cas e. Cf. Go dwi nv . Co m m i s s io n er, T.C. M em o . 2 0 0 3 -2 8 9 (i n
co n so l i d at edd efi ci en cy

an dCDP cas es , as s ert i ng juri sd i ct i o no v er s ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n t o t ax as i n t h e CDP cas e u n d er s ect io n 6 3 3 0 (d )(1 )(A)). Pro p erl y co n fi n edt o i ts u nu s ual ci rcu m s t an ces i nthe ap p li cat i o no f res ju di cat a i n rel at ed d efi ci en cy

an dCDP cas es , Vi n es d oes n o t s t an dfo r t h e p ro p o s i t i o n , as- 1 9 -

[* 1 9 ] p et i t i o n ers s u g g es t , th atth i s Co u rtg en eral l y l ack s juri s d ict i on o v er t h e
s ect i on 6 6 5 1 (a)(2 ) ad d it i o n t o t ax . 9 Co n s equ en t l y , co n traryt o p et i t i on ers ’ as s ert io n s an d i nacco rdwi th Co n g res s ’ i n t en ti n am en d i n g s ect i o n6 2 1 4(a), we h av e ju ri sd i ct i o n o v er the
s ect i on 6 6 5 1 (a)(2 ) ad d it i o n s t o t ax at tri b u t ab l e t o th ei r rep o rt edu nd erp aym en t s o f t ax fo r 2 0 0 9 an d 2 0 1 0 s in ce we h av e ju ri sd i ct i o no v er th e Fed eral i n co m e t ax d efi ci en ci es fo r t ho se y ears as refl ect edi nthe No v em ber 2 4 , 2 0 1 4 , n o t i ce o f d efi ci en cy

(wh i ch juri s d ict i o n we acq u i redwh enp et i t i o n ers t im el y p et i t i o n edth i s Co u rtfo r red et erm i n at i o n o f t h o s e d efi ci en ci es ). 1 0

9 In ad d i t i o n, we are co n tro l l ed , i nan y ev en t , b y o u r p reced en ti al o pi n i o n i n Lee En g ’ g Sup p l y

Co . v . Co m

m i s s i o n er, 1 0 1 T.C. 1 8 9 (1 99 3 ).
1 0 Fo r t h e b en efi to f t h e p art i es , we al so m ak e cl ear t h ato u r ju ri s d i ct i o no v er res p o n d en t’ s d et erm i n at i o n o f t h e ad d i t i on s t o t ax u n d er s ec. 6 65 1 (a)(1 ) fo r 2 0 0 9 an d 2 0 1 0 ex t en d s o n ly

t o s o m u ch o f t hes e ad d i t i o n s as i s at tri b u t ab le t o th e d efi ci en ci es fo r t ho se y ears , an dth atwe l ack juri s d ict i o no v er res p o nd en t ’ s d et erm i n at i o n o f t h e ad d i ti o n s t o t ax u n d er s ec. 6 6 5 4 fo r 2 0 09 an d2 0 10 b ecau s e th es e ad d i t i o n s are n ots ub jectt o th e d efi ci en cy

p ro cedu res g i v enth atp et i t i o n ers fi led retu rn s fo r t h o s e y ears . See M ey er v . Co m m is s i o n er, 9 7 T.C. 5 5 5 , 5 6 2 (1 9 9 1); Owen s v . Co m

m i s s i o n er, T.C. M em o. 2 0 01 -3 1 4 , s l i p o p. at 9 n .5 ; Es t at e o f Nem ero v v . Co m

m i s s i on er, T.C. M em o . 1 9 9 8 -1 86 , s l i p o p . at 7 ; cf. J u d g e v . Co m m i s s i o n er, 8 8 T.C. 1 17 5 , 1 1 8 7 (1 9 87 ) (h o l d i n g th at th e Tax Co u rth as juri s d i ct i o n t o d et erm i ne o v erp aym en t s o f ad d i t i o n s t o t ax u n d er s ecs . 6 6 5 1(a)(1 ) an d (2 ) an d6 6 5 4 ev en wh en s uch ad d i t i on s t o t ax are n o t s ub j ectt o th e d efi ci en cy p ro cedures ). Ho wev er, as d is cu s s eds up ra p p . 1 1-1 2 , th es e l i m i t s o n o u r juri s d i ct i o n i n th i s cas e d o n o tp recl u d e t h e p art i es fro m s eek i n g t o i ncl u d e th es e ad d it i o n s as p arto f an ag reem en tt o s et t l e t h i s cas e.- 2 0 -

[* 2 0 ] B. Un fai r Su rp ri s e, Di s ad v an tag e, o r Preju d i ce Wh et h er t o al l ow th e Co m m i s s io n er t o am en dh i s an s wer i s a m at t er wi th i n th e s o u n dd i s cret i o n o f t h e Co u rt , t o b e b as edo n an ex am i n at i o n o f t h e p art i cu lar ci rcu m s t an ces o f t h e cas e b efo re u s . Es t at e o f Qu ickv . Co m m i s s i o n er, 1 1 0 T.C. 1 7 2 , 1 7 8 (1 9 9 8). W e co n s i d er i n p art i cu l ar wh ether t h ere i s a ju s t ifi ab l e reas o n fo r th e Co m m i s s i o n er’ s fai l u re t o o ri g i n al l y p l eadthe m at ter h e s eek s t o am en dh i s p l ead i n g t o i n cl u d e an d wh et h er t h e t ax p ay er “ wo u l ds u ffer u n fai r s u rp ri se, d i s ad v an t ag e, o r p reju d i ce i f t h e m o t i on t o am en dwere g ran t ed .” Id . (an dcas es ci t ed thereat ). Th ere i s n o th i n g i n t h e reco rdthatwo u l ds up po rta fi n d i n g th atp et i t i o n ers wi l l s u ffer u n fai r s u rp ri s e, d is ad v an t ag e, o r p reju d i ce as a res u l t o f o u r g ran t i n g
res p o n d en t’ s m o t i o n. In d eed , p et i ti o n ers h av e b een aware o f t h e s ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n s t o t ax as s ert ed ag ai n s t them fo r 2 0 0 9 an d2 0 1 0 s i n ce wel l b efo re res p o nd en t ’ s fi l i n g o f h i s m o t i o n . Th e No v em b er 2 4 , 2 0 1 4, n o ti ce o f d efi ci en cy

i n cl u dedth e co rrect am o u n to f t h e s ect i o n6 6 51 (a)(2 ) ad di t i o n t o t ax p rev i o u s l y as s es s edfo r 2 0 1 0 (al th o u gh th atn ot i ce i n co rrect l y (an di n ex p l i cab l y ) fai l edt o i n cl u d e an y

am o u n tp rev io u s l y as s es s edfo r t h i s s am e ad d it i on t o t ax fo r 2 0 0 9 ). An dth e Fo rm

5 2 78 p rep aredb y

AO Krs tu lja, wh i ch M s . Di l l o nrecei v ed ap p ro x i m at el y o n e m o n th b efo re t h i s cas e was s ch edu l edfo r t ri al , l i s t edam o u n t s- 2 1 -

[* 2 1 ] p rev i o u s ly

as s es sed fo r t h e s ect i o n6 6 5 1(a)(2 ) ad d it i o n s t o t ax fo r 2 00 9 an d 2 0 1 0 (al th o u g h th e l is t edam o u n tfo r t h e s ect io n6 6 5 1(a)(2 ) ad d it i o nt o t ax fo r 2 0 1 0 was i nco rrect ). Gi v enth es e p rev io u s as s es s m en t s , res po n d en tp res u m ab l y fel tl i t t l e co m

p u n ct io n i n ex p li ci t l y

p l aci n g t h em

ati ss u e i n h i s an s wer, p art i cu l arl y

i n t h e l i g h to f p et i ti o n ers ’ fai l u re t o s p eci fi cal l y m en ti o n th em

i nth ei r p et i t i o n . Ad d i t i o n al l y , th e i n t eract i o nb et ween AO Krs tu lja an dM s. Di l l on l en d s cred en ce t o res p o n d en t’ s cl ai m th ath e d i dn o t kn o wthe s ect i o n 6 6 5 1 (a)(2 ) ad d it i o n s t o t ax wo u l db e d is p u t edu n t i l s h o rt ly b efo re t h e t ri al s es si on atwh i ch h e fi led hi s m o t i o n an d t h atth u s h e was s eek i n g t o am en dh is an s wer “ as a fo rm al i ty
an d i n ord er t o cl ari fy

th e reco rd ”. Co n s equen t l y , i tcan n o t b e s ai d t h atan y fi l i n g d el ay was du e t o a fai l ure o n res p o n d en t ’ s p artt o ex erci se reas o nab l e d i l i g en ce. Fi n al l y , b ecau se we d id n o tactu al l y try th is cas e atth e J u n e 6 , 2 0 1 6 , Ph o en i x , Ari zo n a, tri al s es s i o n (an dh av e n o ty ettri edthi s cas e), p et it i on ers ’ ab i l i ty t o g at h er an dp res en tat tri al ev i d en ce o f reas o n ab l e cau s e i nd efen se t o th e s ect i o n 6 6 5 1 (a)(2 ) ad d i t i o n s t o t ax h as n o t b een h am pered . Cf. Es t at e o f Qu i ckv . Co m m i s s i o n er, 1 1 0 T.C. at1 8 0. Acco rd in g l y , we wi l l g ran tres p o n den t ’ s m o t i o n . W e h av e co n s id eredal l o f t h e arg um en t s m ad e b y th e p art i es an d , t o th e
ex t en tth ey

are n o tad dres s edh erei n , we fi n dth em t o b e m o o t , i rrel ev an t, o r wi th o u tm eri t
.- 2 2 -

[* 2 2 ] To refl ectthe fo reg o i n g , Anap p ro p ri at e o rd er wi ll b e i s s u ed
.