Respondent also argues for the first time on brief that Mr. Rogers received $100,000 of the Multicred fee paid by PPI in 2005 and seeks to characterize it as a shareholder distribution taxable to the extent provided by application of the S corporation rules. The taxation of the $100,000 distribution is a new issue not properly raised before trial, and we will not consider it here. Dirico v. Commissioner, 139 T.C. 396, 416 (2012). With respect to the SRI deposit, SRI deducted the $710,366 as consulting fees.See infra Appendix D.
In any event, the Court is always free to apply the correct law to the facts before it. See Dirico v. Commissioner, 139 T.C. 396, 416-17 (2012).
While it is most appropriate for the Commissioner to assert his legal theories in the deficiency notice or in his pleadings, he is generally not precluded from advancing a new matter during the proceeding of the case unless it would cause taxpayers to suffer unfair prejudice or surprise. Dirico v. Commissioner, 139 T.C. 396, 415-417 (2012); Ware v. Commissioner, 92 TC. 1267, 1269 (1989), aff'd, 906 F.2d 62 (2d Cir. 1990). The Pudlos were not unduly prejudiced or surprised by the argument that Watchman is a sham.
Because there are no facts to be found, only issues of law as applied to undisputed facts, it is unnecessary to assign burden of proof in this case. See, e.g., Dirico v. Commissioner, 139 T.C. 396, 402 (2012). II.