-162-
Petitioner attempts in its opening brief to raise an issue
that its methodology is permissible for 1990 through 1992
because, it asserts, that methodology met the reasonableness
requirement of Notice 89-21, 1989-1 C.B. 651. Notice 89-21,
1989-1 C.B. at 652, clarifies that swaps income from lump-sum
payments should be spread over the life of the swap “using a
reasonable method of amortization.” We decline to consider this
issue. Petitioner has raised the issue on brief in violation of
our August 14, 2000, order, see Estate of Maggos v. Commissioner,
T.C. Memo. 2000-129 (Court held that a party would not be
entitled to raise an issue not set forth in a memorandum filed by
that party in response to a similar order of this Court), and we
find credible respondent’s assertion on brief that he justifiably
relied upon our August 14, 2000, order in preparing for and
conducting the trial of this case. We also agree with respondent
that he would be prejudiced were we now to decide whether
petitioner’s method of accounting for its 1990 through 1992 swaps
income met the reasonableness requirement of Notice 89-21, supra.
II. Does Section 475 Involve a Method of Accounting?
A. Overview
For each relevant year, respondent determined that FNBC’s
method of accounting for its swaps (more specifically, its
treatment of the adjustments) did not clearly reflect its swaps
income. Accordingly, respondent determined, he was entitled to
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