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of surprise and the need for additional evidence on behalf of the
party opposed to the new position.’” Sundstrand Corp. v.
Commissioner, 96 T.C. 226, 347 (1991) (quoting Pagel, Inc. v.
Commissioner, 91 T.C. 200, 211-212 (1988), affd. 905 F.2d 1190
(8th Cir. 1990)). Because the parties agreed to submit these
cases fully stipulated, respondent made his decisions regarding
what evidence to proffer on the basis of the pleadings and the
stipulations, including the stipulation that the amounts paid to
Western General were “properly” included in petitioners’ income.
To be confronted with this new issue after the evidentiary record
is closed is prejudicial to respondent. Accordingly, we will not
consider whether the amounts paid to Western General were not
includable in petitioners’ income on the basis of the “claim of
right” doctrine or income attribution principles. Instead, we
shall consider only the issue that was properly raised; namely,
the appropriate period for deducting the amounts paid by
petitioners to a third-party insurer to assume petitioners’ risks
under the EWA’s that petitioners sold to their customers.
II. Proper Period To Deduct Amounts Paid for Multiyear Insurance
A. Petitioners’ Arguments
To support their position that respondent’s determinations
are erroneous, petitioners argue that respondent abused his
discretion by requiring petitioners to change their method of
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