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might have greater merit than the primary position of either of
the parties, we had them address this newly raised issue in
supplemental briefs.
I. Lack of Prejudice to Respondent in Addressing Liquidation
Respondent maintains that petitioner’s delay in raising the
de facto liquidation issue precludes us from addressing it.
Respondent relies on Brown v. Commissioner, T.C. Memo. 1979-443,
to argue that our consideration of the new issue raised on brief
would severely prejudice her case and violate fundamental
fairness.
We have allowed petitioner to raise the de facto liquidation
issue for two reasons. First, just as respondent is not bound by
the theory upon which she relied in determining the deficiency,
Blansett v. United States, 283 F.2d 474 (8th Cir. 1960), so
petitioner is not precluded from raising a new theory on post-
trial brief. Ware v. Commissioner, 906 F.2d 62 (2d Cir. 1990),
affg. 92 T.C. 1267 (1989) and T.C. Memo. 1989-165 (declining to
adopt an ironclad rule that the Tax Court may not consider a
legal theory surfacing in posttrial briefs). Our duty is to
consider all the evidence, and in light thereof, decide whether
or not petitioner has a deficiency. We are therefore entitled to
adopt a new theory of decision, especially where we give both
parties the opportunity to argue its merits. See Brooks v.
Commissioner, 424 F.2d 116 (5th Cir. 1970), revg. 50 T.C. 927
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