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the corporate ledger “Wayne Cash Loans to HJB”. Therefore, we
conclude that any alleged loans from Mr. Wright to HJ Builders
were equity contributions to risk capital rather than true debt.
See Fin Hay Realty Co. v. United States, 398 F.2d at 696; Segel
v. Commissioner, supra at 832. Thus the disbursements totaling
$72,000 in 2001 were dividend distributions taxable to
Mr. Wright.
On brief, petitioners assert for the first time that HJ
Builders did not have enough earnings and profits in calendar
year 2001 to allow for dividend treatment of the distributions
paid out to Mr. Wright that year. Petitioners argue that
adjustments should be made to HJ Builders’ stated earnings and
profits to account for previous distributions to Mr. Wright that
should have been treated, for both book and tax purposes, as
dividend distributions but were not. Respondent argues that
allowing this belated argument would prejudice respondent.
The Court has consistently allowed a party to rely on a
theory only if the opposing party is provided with fair warning
and is not prejudiced by the need to gather additional evidence
to address the opposing party’s theory adequately. Seligman v.
Commissioner, 84 T.C. 191, 198-199 (1985), affd. 796 F.2d 116
(5th Cir. 1986). Although petitioners claim that Wayne’s Ledger
represents amounts distributed to Mr. Wright that reduced
HJ Builders’ earnings and profits balance in previous years,
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