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constitutes an "affected item" within the meaning of section
6231(a)(5) such that section 6229 applies to extend the period of
limitations for making assessments in this case.
Petitioners object to respondent's motion, claiming that the
"cause of justice" is not served by allowing respondent to amend
the answer. Petitioners argue that respondent was cognizant of
the section 469 issue at least as early as September 8, 1994, at
which time respondent's agent warned petitioners' representative
in writing that deficiency notices for 1989 and 1990 challenging
petitioners' nonpassive characterization of their share of
Partnership losses would be forthcoming unless petitioners filed
amended returns for those years. Petitioners further note that
the invalid May 2, 1997, notices clearly allege that the section
469 issue is an affected item, and that these notices were issued
approximately 2 months before respondent filed the answer in the
instant case. Petitioners maintain that respondent's failure to
affirmatively allege the foregoing in the pleadings at any time
prior to the motion to amend the answer amounts to an inexcusable
delay and should be treated as a waiver or concession of such
argument.
There is nothing in the record which would support a finding
that petitioners will suffer unfair surprise or prejudice as a
result of our granting respondent's motion. In fact, petitioners
have been aware of the arguments respondent now wishes to
affirmatively allege for some time. See Waterman v.
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