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Respondent also cites the discrepancy between (i)
petitioner’s claim in the document given to his accountant and in
his petition that the buildings in issue were valuable before,
and useless after, the claimed casualty, and (ii) the testimony
of Mr. Keil, the building inspector, to the effect that the
buildings in question were being used after the roof collapse.
But Mr. Keil was respondent’s witness, and his testimony was
characterized in respondent’s trial memorandum as concerning the
buildings’ condition before and after the claimed casualty. Thus
respondent knew prior to trial that he had an independent witness
to contradict petitioner’s various assertions that the buildings
were rendered useless by the claimed casualty.
We conclude that the essential facts on which respondent
bases his allegations of fraud were known to respondent’s counsel
prior to trial. Under the circumstances of this case, the
failure to give notice to petitioner that he was required to
defend against fraud results in significant prejudice. Cf.
Pallante v. Commissioner, T.C. Memo. 1989-334 (counsel for
respondent sought amendment to pleadings to assert fraud after
trial, based on facts known prior to trial). While there is
evidence in the record that might support a finding that
petitioner committed fraud, petitioner was entitled to notice and
an adequate opportunity to rebut respondent’s evidence.
Accordingly, respondent’s motion to amend is denied.
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