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different evidence, the necessary evidence is a part of the
record in this case, and he has met his burden of proof regarding
the section 263A issue.
Because we believe that the record is sufficient to decide
the section 263A issue regardless of which party bears the burden
of proof and that petitioners are not subjected to unfair
surprise or prejudice by the introduction of that issue, we
proceed to consider respondent’s section 263A argument on the
merits.
C. Application of Section 263A
Section 263A was enacted as part of the Tax Reform Act of
1986 (TRA 1986), Pub. L. 99-514, sec. 803(a), 100 Stat. 2350, and
is generally effective for costs incurred after December 31,
1986, in taxable years ending after December 31, 1986. TRA 1986
sec. 803(d)(1), 100 Stat. 2356. In enacting section 263A,
Congress intended that a single, comprehensive set of rules
generally should govern the capitalization of costs, including
interest expenses, of producing, acquiring, and holding property
in order to more accurately reflect income and make the tax
system more neutral. Suzy’s Zoo v. Commissioner, 273 F.3d 875,
879 (9th Cir. 2001), affg. 114 T.C. 1 (2000); S. Rept. 99-313 at
140 (1986), 1986-3 C.B. (Vol. 3) 1, 140. The term “produce” has
been construed broadly in order to give effect to legislative
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