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As noted above, respondent decided to rely exclusively on
the accounting method theory 2 weeks prior to the trial of the
instant case, after petitioners had complied with respondent's
discovery requests and respondent had rejected petitioners'
offers to settle the case.4 Although respondent claims that the
change constituted a "narrowing" of theories that resulted from
development of the facts through discovery during the course of
the Tax Court proceeding, respondent does not set forth any
specific facts that prompted the change when respondent became
aware of them, and petitioners contend that no facts were
developed that would form the basis of a new position.
Petitioners allege, and respondent does not deny, that the theory
respondent ultimately advanced at trial was adopted shortly after
it was suggested to respondent's counsel by "IRS experts in
Washington".
Petitioners also allege, and respondent does not deny, that,
on the day when respondent informed petitioners' counsel that
respondent would rely on the accounting method theory,
respondent's counsel acknowledged that her research on it was
4 Respondent indicates that the case was not settled because
certain facts crucial to petitioners' claims were only
established by petitioner's testimony at trial and that
petitioners' ability to establish those facts turned on
petitioner's credibility. Respondent has not suggested that the
information contained in petitioner's testimony was not available
prior to the trial. Moreover, respondent's abandonment 2 weeks
prior to trial of the contention that the payment in issue was
not a guaranteed payment suggests that respondent believed that
petitioners would be able to establish that claim.
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Last modified: May 25, 2011