Klaas

Appellants Larry and Lisa Klaas appeal the decision by the United States Tax Court upholding the Commissioner’s assessment of income tax deficiencies against the Klaases for the taxable year 2001. 1 The sole issue on appeal is whether the Tax Court abused its discretion by determining a tax deficiency based on a legal theory raised in the Commissioner’s post-trial brief. 2 Since the Klaases failed to show the Tax Court how they were prejudiced by the Commissioner’s introduction of the late theory, we hold that the Tax Court did not err by deciding the case based on the Commissioner’s post-trial argument.

BACKGROUND

From December 1999 to November 2001, Mr. Klaas owned Silver Spur RV Park through Silver Spur Holdings, a limited liability company whose sole shareholder was Klaas Development, Inc. (“KDI”), an S corporation. 3 Mr. Klaas was, in turn, KDI’s sole shareholder.

On October 8, 2001, Mr. Klaas incorporated Apex Insurance Company (“Apex”) as a controlled foreign corporation with the intent of qualifying Apex for tax-exempt status under section 501(c)(15) of the tax code. Mr. Klaas is the sole shareholder of Apex.

That same day, Mr. Klaas executed an Agreement and Plan of…