Contrary to petitioners' contentions, respondent's legal theories merely clarify and develop his determination in the notice of deficiency and do not constitute new matters. See Shea v. Commissioner, 112 T.C. 183, 201 (1999) (discussing differing effects of relying on a new theory and raising a new matter); Ware v. Commissioner, 92 T.C. 1267 (1989), aff'd, 906 F.2d 62 (2d Cir. 1990); Achiro v. Commissioner, 77 T.C. 881, 889-890 (1981). Although it is most appropriate for the Commissioner to assert his legal theories in the notice of deficiency, the answer, or his amended answer, the Commissioner is not necessarily barred from relying on new legal theories advanced later during the pendency of the proceedings.

Whether an issue not raised in the pleadings will nonetheless be considered is a matter within the Court's discretion, taking into account the risk of prejudice or unfair surprise to the opposing party. Smalley v. Commissioner, 116 T.C. 450, 456 (2001); Ware v. Commissioner, 92 T.C. 1267, 1268 (1989) (allowing a party to raise a new issue for the first time on brief). Prejudice or unfair surprise arises when the opposing party would be prevented from presenting evidence that might have been offered if the issue had been timely raised.

The Tax Court accepted this theory and found in favor of the Commissioner. See T.C. Memo 1989-165 (Apr. 13, 1989), petition for reconsideration denied, 92 T.C. No. 83 (June 13, 1989). In this appeal, Ware contends, first, that the fee was not an unrealized receivable; second, that even if the fee were an unrealized receivable, it would not be attributable to him; and third, that the Commissioner raised the unrealized receivable issue too late for it to be considered by the Tax Court.

Robert cannot have suffered any unfair prejudice or surprise from respondent's reliance on the same theory he disclosed before trial. See Ware v. Commissioner, 92 T.C. 1267 (1989), supplementing T.C. Memo. 1989-165, aff'd, 906 F.2d 62 (2d Cir. 1990). In any event, the Court is always free to apply the correct law to the facts before it.

However, we will not generally preclude him from advancing a new matter during the proceeding of the case unless the new matter would cause petitioner to experience unfair prejudice or surprise. Dirico v. Commissioner, 139 T.C. 396, 415-417 (2012); Ware v. Commissioner, 92 TC. 1267, 1269 (1989).

Whether an issue not raised in the pleadings will nonetheless be considered is a matter within the Court's discretion, taking into account the risk of prejudice or unfair surprise to the opposing party. Smalley v. Commissioner, 116 T.C. 450, 456 (2001); Ware v. Commissioner, 92 T.C. 1267, 1268 (1989) (allowing a party to raise a new issue for the first time on brief). Prejudice or unfair surprise arises when the opposing party would be prevented from presenting evidence that might have been offered if the issue had been raised timely.

Whether an issue, not raised in the pleadings, will nonetheless be considered is a matter within the Court's discretion, taking into account the risk of prejudice or unfair surprise to the opposing party. Smalley v. Commissioner, 116 T.C. 450, 456 (2001); Ware v. Commissioner, 92 T.C. 1267, 1268 (1989) (allowing a party to raise a new issue for the first time on brief). Prejudice or unfair surprise arises when the opposing party would be prevented from presenting evidence that might have been offered if the issue had been timely raised.

The opposing party is considered to be surprised or prejudiced when the lack of notice causes it not to present evidence at trial to defend against the new theory. See Chapman Glen Ltd. v. Commissioner, 140 T.C. 294, 349-50 (2013) (taxpayer was prejudiced because taxpayer had no reason to introduce evidence directed towards disproving the IRS's new argument first raised on brief); Sundstrand v. Commissioner, 96 T.C. 226, 348 (1991) (taxpayer was prejudiced because taxpayer would have introduced additional evidence had it known of the new theory); Seligman v. Commissioner, 84 T.C. 191, 199 (1985) (taxpayers were prejudiced because taxpayers did not have the opportunity to present evidence on the new theory); Ware v. Commissioner, 92 T.C. 1267, 1269 (1989) (taxpayers were not prejudiced because it is unclear what additional evidence the taxpayers would have presented on account of the new theory); Pagel, Inc. v. Commissioner, 91 T.C. 200, 212 (1988) (taxpayers were not prejudiced because the evidence necessary for a legal determination under the new theory proposed by IRS was already in the record). A theory can be considered a new theory even if it involves the same Code section as the theory upon which the case was tried. Sundstrand Corp., 96 T.C. at 347.

Whether the Court will consider an issue not raised in the petition "is a matter for the Court's discretion, taking into account the risk of prejudice to the opposing party." Toyota Town, Inc. v. Commissioner, T.C. Memo 2000-40 at *5 citing Ware v. Commissioner, 92 T.C. 1267, 1268 (1989), aff'd 906 F.2d 2 (2d Cir. 1990); Estate of Deputy v. Commissioner, T.C. Memo 2003-176 at *3-4 (respondent was prejudiced when petitioner first raised an issue in a posttrial brief). We consider the section 6630(c)(1)/6751(b) verification issue even though petitioner did not raise it in the petition because we find that doing so does not prejudice respondent. As evidenced by the fact that respondent addressed the issue in his Motion for Summary Judgment, respondent had sufficient notice of the issue to discover and present evidence relating to the issue.

Whether the Court will consider an issue not raised in the petition "is a matter for the Court's discretion, taking into account the risk of prejudice to the opposing party." Toyota Town, Inc. v. Commissioner, T.C. Memo 2000-40 at *5 citing Ware v. Commissioner, 92 T.C. 1267, 1268 (1989), aff'd 906 F.2d 2 (2d Cir. 1990); Estate of Deputy v. Commissioner, T.C. Memo 2003-176 at *3-4 (respondent was prejudiced when petitioner first raised an issue in a posttrial brief). We consider the section 6630(c)(1)/6751(b) verification issue even though petitioner did not raise it in the petition because we find that doing so does not prejudice respondent. As evidenced by the fact that respondent addressed the issue in his Motion for Summary Judgment, respondent had sufficient notice of the issue to discover and present evidence relating to the issue.