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ability to prepare its case. Of key importance in
evaluating the existence of prejudice is the amount of
surprise and the need for additional evidence on behalf
of the party opposed to the new position. [Citations
omitted.]
See also Sundstrand Corp. v. Commissioner, 96 T.C. 226, 346-347
(1991), where we observed that we have refused to consider a new
theory raised by the Commissioner where consideration of the
theory would prejudice the taxpayer. In Sundstrand Corp. we
concluded that the taxpayer was prejudiced because it would have
presented additional evidence at trial if it had known of the new
theory in advance.
In the case at hand, respondent’s Motion to Consolidate
informed petitioner, more than 8 months before trial, of
respondent’s position that Universal was a sham and that
individual items of income were taxed to petitioner personally.
More than 7 months before trial, respondent’s Requests for
Admission sought information that once again put petitioner on
notice of respondent’s position that Universal was a sham. In
addition, almost 2 months prior to trial, respondent’s motion to
compel informed petitioners:
the primary issue is whether Universal Trust, created
by petitioners Ghavami and Johnston; should be
disregarded for tax purposes due to its lack of
economic substance and attempted assignment of income
with the result that the net income reported by the
trust, is properly reported by petitioners Ghavami and
Johnston.
Finally, on June 19, 2000, the Court discussed the assignment of
income, sham, and grantor trust theories with petitioner. The
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