- 19 -
It is well established that respondent may rely
upon a theory if [he] has provided petitioner with
"fair warning" of [his] intention to proceed under that
theory. Leahy v. Commissioner, 87 T.C. 56, 64 (1986);
Schuster's Express, Inc. v. Commissioner, 66 T.C. 588,
593 (1976), affd. per curiam 562 F.2d 39 (2d Cir.
1977); Rubin v. Commissioner, 56 T.C. 1155, 1163
(1971), affd. 460 F.2d 1216 (2d Cir. 1972). "Fair
warning means that respondent's failure to give
petitioner notice of [his] intention to rely on a
particular theory in the statutory notice of deficiency
or the pleadings, must not have caused harm or
prejudice to petitioner in petitioner's ability to
prepare [their] case." William Bryen Co. and
Subsidiaries v. Commissioner, 89 T.C. 689 (1987). See
also Schuster's Express v. Commissioner, supra at
593-594; Rubin v. Commissioner, supra at 1163. In
Leahy, we recognized that an argument may not be made
for the first time on brief unless it is shown that
there is neither surprise nor need for additional
evidence to be presented. * * * [Fn. ref. omitted.]
Respondent first made the economic-benefit argument in his
reply brief. Respondent has not shown that there "was neither
surprise nor need for additional evidence to be presented."
Therefore, we will not consider this argument.
As respondent has not proven that petitioner is taxable on
the contributions when vested, we hold for petitioners on this
issue. We need not, therefore, address petitioners' dual status
arguments.
D. Calculation of Self-Employment Taxes Due
Allstate treated petitioners as employees during the years
in issue. The Federal Insurance Contributions Act (FICA), secs.
3101-3125, 68A Stat. 415 (1954), taxes a portion of the wages
paid to an employee (FICA tax). The portion of the wages taxed
is defined in section 3121(a). Under FICA, the employer and the
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