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adjustment made in the notice of deficiency is treated as new
matter when it either alters the original deficiency or requires
the presentation of different evidence. Wayne Bolt & Nut Co. v.
Commissioner, 93 T.C. 500, 507 (1989). A new theory that merely
clarifies or develops the original determination is not new
matter. Id.
In the notice of deficiency, respondent treated petitioner
as an employee of IDA consistent with his reporting the
compensation from IDA as wages, salaries, tips, etc. on the
returns. Consequently, respondent disallowed all deductions
petitioner claimed on Schedule C for each year but allowed
petitioner to deduct some of the items as unreimbursed employee
expenses on Schedule A. The notice of deficiency explained that
deductions were not allowed on Schedule C because petitioner had
not established that he incurred, or if he incurred, paid the
amounts for ordinary and necessary business purposes and that any
amount qualifies as a business expense as specified under the
provisions of the Internal Revenue Code.
The notice of deficiency raised two issues that are relevant
here. The first is whether petitioner was an independent
contractor entitled to fully deduct allowable expenses on
Schedule C or an employee of IDA entitled to deduct the expense
on Schedule A, subject to the 2-percent limitation under section
67. The second is whether any of the travel expenses for which
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