Jeffrey Tamms - Page 13




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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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