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Commissioner, T.C. Memo. 2003-39; Nichols v. Commissioner, T.C.
Memo. 2003-24, affd. 79 Fed. Appx. 282 (9th Cir. 2003).
Petitioners raised the issue of whether section 7491(a)
applies for the first time in their posttrial brief. Respondent
argues that he would be prejudiced if we were to allow
petitioners to raise the section 7491(a)(2) requirements issue
for the first time on brief because had they raised the issue
earlier, respondent could have presented evidence showing that
petitioners have not satisfied the requirements. We agree with
respondent. See Smith v. Commissioner, T.C. Memo. 2007-368;
Deihl v. Commissioner, T.C. Memo. 2005-287. Furthermore, other
than the testimony of the examining agent that petitioners
provided her with a lot of information, the record contains no
specific evidence that petitioners have complied with all of the
substantiation and record maintenance requirements or cooperated
with respondent’s information requests. Therefore, the record is
insufficient for us to find that petitioners have satisfied the
requirements of section 7491(a)(2), and we conclude a shift of
the burden of proof is not appropriate in this case.
II. Whether Petitioners Must Pay Income Tax on FRC’s Income for
1997
Petitioners argue that they are not required to pay income
tax on any of FRC’s income or loss for 1997 because collateral
estoppel prevents respondent from taxing petitioners in an amount
in excess of what they received from the arbitration award and
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