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of limitations prescribed by Section 6511(d)(3)(A),
which is generally 10 years from the date of filing of
the return. In the event that the Court holds that
either or both the special commission payments and the
DPP payments constitute U.S. source income, and such
holding or holdings are sustained on appeal or not
appealed, the petitioners reserve the right to elect to
take a deduction for the stipulated foreign taxes paid
in lieu of the foreign tax credit for any or all of the
years of the relevant period.
We, however, conclude that petitioners may not reserve such a
right in the procedural posture presented.
Petitioners have raised for the first time on brief not only
their entitlement to a deduction under section 164 but also an
issue of statutory and regulatory interpretation. It is the
well-settled rule of this Court that a matter raised for the
first time on brief will not be considered when to do so would
prejudice the opposing party. See DiLeo v. Commissioner, 96 T.C.
858, 891-892 (1991), affd. 959 F.2d 16 (2d Cir. 1992); Markwardt
v. Commissioner, 64 T.C. 989, 997 (1975). Such prejudice arises
when the opposing party would be prevented from presenting
evidence that might have been offered if the issue had been
timely raised, or would otherwise be surprised and placed at a
disadvantage. See DiLeo v. Commissioner, supra at 891-892;
Markwardt v. Commissioner, supra at 997.
Here, respondent was denied the opportunity to present
evidence concerning whether petitioners satisfied the
requirements for a deduction. Respondent’s choices as to which
items to stipulate and which to litigate might also have been
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