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Petitioner’s Motion in Limine asserts that respondent’s
failure to include a fuller explanation in the statutory notice
should have consequences. More particularly, petitioner claims
respondent should not be permitted to raise the assignment of
income, sham, or grantor trust theories in the case at hand. In
the alternative, petitioner asserts that respondent should bear
the burden of proof on factual issues relating to those theories.
A. Issue Preclusion
We note that respondent is not necessarily limited to the
issues or theories discussed in the statutory notice or the
answer. For example, we have considered arguments raised by the
Commissioner for the first time on brief. See Ware v.
Commissioner, 92 T.C 1267, 1268 (1989), where we stated:
The rule that a party may not raise a new issue on
brief is not absolute. Rather, it is founded upon the
exercise of judicial discretion in determining whether
considerations of surprise and prejudice require that a
party be protected from having to face a belated
confrontation which precludes or limits that party’s
opportunity to present pertinent evidence. * * *
More generally, we have stated, in Pagel, Inc. v.
Commissioner, 91 T.C. 200, 211-212 (1988), affd. 905 F.2d 1190
(8th Cir. 1990):
It is well established that a party may rely upon
a theory if the opposing party has been provided with
fair warning of the intention to base an argument upon
that theory. “Fair warning” means that respondent’s
failure to give notice, in the notice of deficiency or
in the pleadings, of his intention to rely on a
particular theory did not prejudice the taxpayer’s
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