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II. Whether Respondent Has Raised a New Issue on Brief
Respondent asserts for the first time on brief in
conjunction with his incomplete transfer argument that the values
of the Marital Fund assets are includable in decedent’s gross
estate under section 2033 or section 2041(a)(2). Petitioner
contends that respondent’s section 2041(a)(2) argument is a new
issue that we should decline to decide.
A party may not raise an issue for the first time on brief
if the new issue surprises and prejudices the opposing party.
Smalley v. Commissioner, 116 T.C. 450, 456 (2001) (citing
Seligman v. Commissioner, 84 T.C. 191, 198-199 (1985), affd. 796
F.2d 116 (5th Cir. 1986)). In evaluating whether the opposing
party will suffer prejudice, we must consider the degree to which
the opposing party is surprised by the new issue and the opposing
party’s need for additional evidence to respond to the new issue.
Pagel, Inc. v. Commissioner, 91 T.C. 200, 212 (1988), affd. 905
F.2d 1190 (8th Cir. 1980). Furthermore, a party may not rely
upon a new theory unless the opposing party has been provided
with fair warning of the intention to base an argument upon that
theory. Id. at 211-212. “Fair warning” means that the taxpayer’s
ability to prepare its case was not prejudiced by the
Commissioner’s failure to give notice, in the notice of
deficiency or in the pleadings, of his intention to rely on a
particular theory. Id.
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