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property. Neither the expense nor the depreciation figures
reflect rental income received. There was no mention of Schedule
E rental income or the business or profit-seeking status of
petitioners' real estate activities in respondent's Answer or in
his trial memorandum. Respondent first formally raised the
substantiation of the rental income at trial. The challenge to
the business or profit-seeking status of petitioners' activities
was not raised until the posttrial brief. Because the notice was
quite specific regarding the Schedule E items disallowed, we do
not believe that the issue of the "trade or business" or "for
profit" status of petitioners' real estate activities was fairly
raised in the pleadings prior to trial, or during the trial, and
decline to permit respondent to raise it for the first time in a
posttrial brief. See Fox Chevrolet, Inc. v. Commissioner, 76
T.C. 708, 735 (1981); Estate of Horvath v. Commissioner, 59 T.C.
551, 555-556 (1973). Since respondent has conceded the expenses
and depreciation disallowed in the notice, we allow deductions
for those items.
Finally, we consider whether petitioners have substantiated
the Schedule E expenses relating to the Mississippi land
disallowed in the notice.8 To substantiate the Schedule E auto
and travel expenses that were disallowed, petitioners offered
8Respondent has conceded that petitioners are allowed a
deduction in the amount of $259 for taxes related to the
Mississippi land.
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