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That scenario leaves respondent free to argue positions or
theories that she believes set the standard that petitioner must
meet to satisfy its burden of proof. As discussed above, the
advancing of theories in that setting is subject to timeliness
and fairness. Accordingly, respondent is not precluded from
contending that petitioner must show the relationship between the
expenditure and the contract provisions is nothing more than
respondent’s theory. Petitioner’s burden of proof on this issue
will not be shifted to respondent.
Finally, respondent has not shown bad faith or any willful
act for which a sanction should be considered. The parties
ideally should develop and adhere to their theories at the
earliest possible time in the controversy process. In practice,
that level of foresight and consistency is not always achieved.
Indeed, petitioner’s claim for the increased research credits was
not part of its original return. Instead, it surfaced near the
end of the administrative process preceding this litigation.
That is a different setting from one where an issue is raised in
a taxpayer’s return and developed in the normal course of an
audit. The circumstances of this case fit within the reasonable
limits of controversy development, and no remedial action to
shift the burden is needed. Petitioner continues to bear the
burden of proving the amount of the increased credit. In that
regard, the Court is prepared to allow an adequate pretrial
period within which the parties may develop their approaches and
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Last modified: May 25, 2011