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the expenses in question must be capitalized under section 263A
in the notices of deficiency and that we should reject
respondent’s belated attempt to raise section 263A under these
circumstances. Petitioners do not explicitly contend that
respondent’s argument is a new matter on which respondent bears
the burden of proof. See, e.g., Abatti v. Commissioner, 644 F.2d
1385 (9th Cir. 1981), revg. T.C. Memo. 1978-392; Shea v.
Commissioner, 112 T.C. 183 (1999). Rather, petitioners seem to
focus on whether respondent’s delay in relying upon section 263A
is unfair and prejudicial to petitioners. Nevertheless, because
petitioners represented themselves in these proceedings without
benefit of counsel and because we conclude petitioners implicitly
alleged that respondent’s section 263A argument was a new matter,
we shall address both petitioners’ explicit and implicit
arguments, just as respondent did in his posttrial briefs.
A. Respondent’s Delay in Relying Upon Section 263A
The notices of deficiency for 1992 and 1993 employed broad
language in disallowing petitioners’ claimed Schedules C and E
expenses and NOL deductions and do not specifically mention
section 263A. Petitioners, however, cannot complain that they
were unfairly surprised and prejudiced by respondent’s assertion
of, and reliance upon, section 263A. Petitioners’ accountant
testified that respondent’s counsel had raised the application of
section 263A in this case at least 1 year before trial during a
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