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argues for the first time on brief, with little elaboration, that
this undertaking was a “new and separate activity from what went
before and not simply * * * an improvement or change to the old
activity”. Respondent relies on Pederson v. Commissioner, T.C.
Memo. 1994-555, for the proposition that petitioner cannot
support a profit motive in his photography activities by
“combining that activity on the same Schedule C with a legitimate
business activity.”
Unlike Pederson, this is not a case where respondent
determined petitioner’s Schedule C activity to comprise separate
and distinct activities, as opposed to raising the issue for the
first time on brief. As a general rule, we will not consider
issues raised for the first time on brief where surprise and
prejudice are found to exist. See Sundstrand Corp. v.
Commissioner, 96 T.C. 226, 346-347 (1991); Seligman v.
Commissioner, 84 T.C. 191, 198 (1985), affd. 796 F.2d 116 (5th
Cir. 1986). We believe that petitioner was surprised and
prejudiced in the development of his evidence by respondent’s
posttrial contentions in this regard. In particular, if we were
to find that petitioner’s Schedule C activity comprised two or
more separate activities, it would be necessary to allocate
petitioner’s expenses among the separate activities. See sec.
1.183-1(d)(2), Income Tax Regs. By not being forewarned of
respondent’s posttrial contentions, petitioner has been denied
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