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matter, increases in deficiency, and affirmative defenses,
pleaded in the answer.”
The difficulty for the Hursts is that we do distinguish
between new matters and new theories--“we have held that for
respondent to change the section of the Code on which he relies
does not cause the assertion of the new theory to be new matter
if the section relied on is consistent with the determination
made in the deficiency notice relying on another section of the
Code.” Barton v. Commissioner, T.C. Memo. 1992-118 (citing
Estate of Emerson v. Commissioner, 67 T.C. 612, 620 (1977)),
affd. 993 F.2d 233 (11th Cir. 1993). In short, a “new matter” is
one that reasonably would alter the evidence presented. A “new
theory” is just a new argument about the existing evidence and is
thus allowed.
We therefore describe how section 304 works, how it might
apply to the Hursts’ sale of RHI, and most importantly whether it
would alter the evidence the Hursts might reasonably have wanted
and been able to introduce.
2. Section 304 and the Sale of the RHI Stock
As noted above, the best individual taxpayers can hope for
when disposing of their stock is for it to be treated as a sale
of a capital asset. But this might create an opportunity for a
creative taxpayer in command of two companies to sell his stock
in one to the other, gaining the benefit of sale treatment,
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