- 32 -
viously applicable law newly relied upon by the Commissioner to
support a portion of the original deficiency. Id. at 197. Here,
as there, ”Respondent failed to offer any evidence that indicated
that respondent considered the application of * * * [that law] in
making his determination.” Id. at 192. We thus view the lack of
evidence on the section 304 question as the Commissioner’s fail-
ure to meet his burden, and we do not rule against the Hursts on
this issue.9
C. The Taxability of Mrs. Hurst’s Medical Benefits
The final issue is the Commissioner’s assertion that the
cost of Mrs. Hurst’s medical insurance paid by HMI is taxable to
her. On this issue, the Commissioner is right. Under section
1372(a), an S corporation (and, remember, HMI elected to be an S
corporation) is treated as a partnership, and any employee who is
a “2-percent shareholder” is treated as a partner when it comes
to deciding whether an employee fringe benefit (like an employ-
er’s share of health insurance premiums) is includible in his
gross income. Amounts paid by a partnership to (or for the bene-
fit of) one of its partners are called “guaranteed payments” un-
9 The Commissioner also contends that the Hursts should have
understood that section 304 was at issue, because “[t]he only
legal theory upon which the respondent could have relied to dis-
allow the installment sale or exchange treatment for the redemp-
tion of the RHI stock is I.R.C. � 304.” Respondent’s Response to
Petitioner’s Motion to Strike A Portion of Respondent’s Brief
par. 2. Our rules do not force taxpayers into such guesswork.
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