* The Honorable Paul H. Roney, Senior Circuit Judge, United States Court of

Appeals for the Eleventh Circuit, sitting by designation.

PUBLISH

UNITED STATES COURT OF APPEALS

Filed 11/13/96

TENTH CIRCUIT

 

WILLIAM LEFEVER, Qualified Heir- )

Transferee of the Assets of the Estate of )

Blanche Knollenberg, BETTY LOU )

LEFEVER, Qualified Heir-Transferee of )

the Assets of the Estate of Blanche )

Knollenberg, )

)

Petitioners-Appellants, )

)

v. ) No. 95-9022

)

COMMISSIONER OF )

INTERNAL REVENUE, )

)

Respondent-Appellee. )

 

Appeal from the United States Tax Court

(T.C. No. 19915-92)

 

Submitted on the briefs:

Patrick J. Regan of Regan & McGannon, Wichita, Kansas, and

Juandell D. Glass, Norman, Oklahoma, for Petitioners-Appellants.

Gilbert S. Rothenberg and Andrea R. Tebbets, Attorneys, Tax Division, Department of

Justice, Washington, D.C., for Respondent-Appellee.

Before BALDOCK, McWILLIAMS, and RONEY* Circuit Judges.
2

BALDOCK, Circuit Judge.

In a federal estate tax return, Petitioners valued several parcels of inherited

farmland under the special use valuation election, 26 U.S.C. § 2032A, which reduced the

valuation of the land from its fair market value. Seven years after they filed the election,

Respondent determined that they were not putting the land to a qualifying use as required

to maintain the benefits of the election, and assessed additional taxes against Petitioners.

Petitioners filed a challenge in Tax Court, contending that they were never actually

entitled to the special use valuation election and that a three-year statute of limitations

barred the assessments. The Tax Court ruled that the assessments were timely under a

provision of the Code extending the limitations period for three years after Respondent

has notice that the property is no longer being put to a qualifying use. Most significantly,

the Tax Court ruled that Petitioners were precluded under the doctrine of the duty of

consistency from denying the initial validity of the special use valuation election.

Petitioners appeal, challenging the Tax Court’s rulings as to the liability issues and

the calculation of the additional tax. We exercise jurisdiction under 26 U.S.C. § 7482

and, finding no reversible error, affirm.

I. Background

A. Section 2032A

The Tax Code imposes a general estate tax on the transfer of the taxable estate of

every decedent who is a resident or citizen of the United States. 26 U.S.C. § 2001. The
3

estate’s executor is responsible for paying this tax. Id. § 2002. The estate tax under

§ 2001 is generally based on the fair market value of the taxable property, valued at its

highest and best use. See Brockman v. Commissioner, 903 F.2d 518, 519 (7th Cir. 1990).

Section 2032A permits certain property used in family farming and closely-held

businesses to be valued on the basis of its actual use at the time of the decedent’s death

rather than on the basis of its highest and best use. Whalen v. United States, 826 F.2d

668, 669 (7th Cir. 1987). With § 2032A, Congress intended to protect the heirs of family

farms and small family businesses from being forced to sell the farms or businesses to pay

federal estate taxes. Id. To take the election, the property must be qualified real property;

the decedent must have been a citizen or resident of the United States; the executor of the

estate must file the election under § 2032A; and each person having an interest in the

property must sign and file a personal liability agreement under § 2032A(d)(2). 26 U.S.C.

§ 2032A(a)(1).

Qualified real property is real property located in the United States and is property

which passes from the decedent to a qualified heir. As of the date of death, the decedent

or a qualified member of the decedent’s family must have been putting the property to a

qualifying use. Id. § 2032A(b)(1). To qualify for the special use valuation election, the

property must constitute statutory percentages of the value of the decedent’s gross and

adjusted estate. See id. § 2032A(b)(1) (describing the 50 percent test and the 25 percent

test). Also, the decedent or member of the decedent’s family must materially participate
4

in putting the property to a qualifying use for five of eight years before the date of death. 

Id. § 2032A(b)(1)(C)(ii); Estate of Sherrod v. Commissioner, 774 F.2d 1057, 1062-63

(11th Cir. 1985) (discussing material participation), cert. denied, 479 U.S. 814 (1986).

A qualifying use includes the decedent or a qualified member of the decedent’s

family using the property as a farm or in a trade or business. 26 U.S.C. § 2032A(b)(2);

Brockman, 903 F.2d at 521-22. Under either use, the family must use the property in an

active trade or business. Brockman, 903 F.2d at 522; Martin v. Commissioner, 84 T.C.

620, 627 (1985), aff’d, 783 F.2d 81 (7th Cir. 1986). Cash rental of the property to a

nonfamily member is not a qualifying use. Brockman, 903 F.2d at 522; Williamson v.

Commissioner, 974 F.2d 1525, 1532-33 (9th Cir. 1992); H.R. Rep. No. 1380, 94th Cong,

2d Sess. 23, reprinted in 1976 U.S.C.C.A.N. 3356, 3377 (“The mere passive rental of

property will not qualify.”).

To maintain the benefits of the special use valuation election, qualified heirs must,

for 10 years following the date of death, continue to put the property to the same qualifying use to which it was put at the date of the decedent’s death. 26 U.S.C.

§ 2032A(c)(1)(B); Williamson, 974 F.2d at 1530. If a qualified heir sells the property or

ceases to use it for the same qualifying use during that period, the heir becomes personally liable for the imposition of an additional estate tax, designed to recapture an amount

proportional to the tax saving gained by taking the special use valuation election. 26

U.S.C. § 2032A(c); Martin v. Commissioner, 783 F.2d 81, 82 (7th Cir. 1986). Impor-
5

tantly, this additional estate tax under § 2032A(c) is distinct from the general estate tax

imposed on the transfer of a decedent’s estate under § 2001.

B. Procedural History

Petitioners William and Betty Lou LeFever, together with their son Joe LeFever,

inherited six parcels of farmland in Butler County, Kansas, from Decedent Blanche

Knollenberg, who died in July 1983. Petitioners’ accountant prepared the corresponding

federal estate tax return based on information provided by Petitioners. Petitioners filed

the estate tax return on April 24, 1984. Upon the accountant’s advice, Petitioners filed a

special use valuation election under § 2032A, which reduced by $585,078 the taxable

value, normally based on the fair market value, of five of the six parcels of farmland

owned by Decedent. 26 U.S.C. § 2032A. The sixth parcel clearly did not qualify for the

special use election and is not part of this appeal. As attachments to the estate tax return

filed on Decedent’s behalf, Petitioners filed appraisals of parcels 1 through 6, the

§ 2032A notice of election, a statement of material participation, and agreements to the

application of the special use valuation election signed by Petitioners and Joe LeFever. In

the agreements, Petitioners and Joe LeFever consented to personal liability for any

additional taxes imposed as a result of a sale of the inherited property or the cessation of a

qualifying use. See id. § 2032A(c)(5). Also they expressly recognized that the agreements were a condition precedent to gaining the benefits of the election. See id.

§ 2032A(d)(2).
6

In July 1990, the Internal Revenue Service sent Petitioners a questionnaire as part

of a program to evaluate whether taxpayers were properly using special use valuation

elections. Petitioners returned the questionnaire to the IRS in early August 1990. Based

on Petitioners’ answers, an IRS estate tax attorney mailed Petitioners a second letter, in

October 1990, requesting additional information, including information on whether

portions of the property subject to the special use valuation election were being cash

rented to nonfamily members. Petitioners responded to the letter in February 1991. They

reported that portions of parcels 2 through 5 were being cash rented.

In separate notices of deficiency, dated July 22, 1992, Respondent determined that

Petitioners were liable for a deficiency in additional estate tax under § 2032A because

certain acres of parcels 2 through 5 were being cash rented to nonfamily members. 

Respondent issued the notices some seven years after Petitioners filed the estate tax

return.

In September 1992, Petitioners filed this challenge to the assessments in Tax

Court. Before the Tax Court, Petitioners argued that the special use valuation election

was invalid at the date of its filing because parcels 2 through 5 had never been put to a

qualifying use. In fact, parcels 2 through 5 had been cash rented to nonfamily members at

the time of Decedent’s death and continued to be cash rented after her death. Petitioners

argued that the estate tax return should have notified Respondent that the election was

invalid, and, thus, that the tax assessments under § 2032A(c) were barred by the Code’s
1 The doctrine is known either as quasi-estoppel or the duty of consistency. 

Eagan v. United States, 80 F.3d 13, 17 (1st Cir. 1996). We will refer to it as the duty of

consistency.

7

three-year statute of limitations. Petitioners also argued that Respondent had not pleaded

an affirmative defense, such as estoppel, in response to their position that the limitations

period had expired.

In contrast, Respondent argued that the assessments were timely under a provision

of the Code extending the limitations period for assessing additional taxes under § 2032A

for three years after Respondent has notice that a taxpayer has ceased putting speciallyvalued property to a qualifying use. 26 U.S.C. § 2032A(f). Respondent contended that

she first received notice that parcels 2 through 5 were not being put to a qualifying use

after receiving Petitioners’ responses to the first questionnaire on August 13, 1990, and,

thus, that the assessments were timely as they were issued on July 22, 1992.

Four months after trial, Respondent moved in the Tax Court for leave to amend her

answer to conform to the evidence presented at trial. Specifically, Respondent sought to

raise for the first time the affirmative defense of quasi-estoppel or the duty of

consistency.1

 The Tax Court found that the parties had tried the matter of the duty of

consistency by consent and granted the motion for leave. The Tax Court subsequently

denied Petitioners’ motion for reconsideration.

After receiving the parties’ post-trial briefs, the Tax Court ruled that the assessments were timely under § 2032A(f). The Tax Court found that Petitioners’ estate tax
8

return, special use valuation election, and supporting documents, were insufficient to put

Respondent on notice that the election was invalid. The Tax Court further found that

Respondent first had notice when she received Petitioners’ answers to the initial questionnaire on August 13, 1990. The Tax Court ruled that Petitioners were precluded under the

duty of consistency from denying the validity of the special use valuation election or that

the property had been put to a qualifying use at the date of Decedent’s death. Thus, the

Tax Court ruled that Petitioners were liable for the additional taxes. It also disallowed

Petitioners’ request for a deduction from the value of the gross estate in the amount of the

attorneys fees incurred in the suit.

II. Discussion

On this appeal, Petitioners challenge: (1) the Tax Court’s granting of leave to

amend to conform to the evidence, (2) its application of the doctrine of the duty of

consistency, (3) its application of the statute of limitations, (4) its rulings and findings

regarding the calculation of the additional estate taxes, and (5) its ruling that Petitioners

were not entitled to deduct the attorneys fees incurred in defending against the tax

assessments.

A. Leave to Amend

Petitioners contend that the Tax Court erred in affording Respondent leave to

amend her answer to conform to the evidence four months after the close of trial. The

Tax Court permitted Respondent to amend her answer to raise for the first time the issue
2 Because the portion of Tax Court Rule 41(b) applicable in this case closely

parallels Rule 15(b) of the Federal Rules of Civil Procedure, see Church of Scientology of

California v. Commissioner, 83 T.C. 381, 469 (1984), aff’d, 823 F.2d 1310 (9th Cir.

1987), cert. denied, 486 U.S. 1015 (1988), we will look to precedent under Rule 15(b) in

considering the Tax Court’s granting of leave to amend. Cf. Commissioner v. Finley, 265

F.2d 885, 888 (10th Cir. 1959) (interpreting predecessor of Tax Court Rule 41(b) in a

manner consistent with Rule 15(b)), cert. denied, 361 U.S. 834 (1959). Compare Tax Ct.

R. 41(b)(1) (“When issues not raised by the pleadings are tried by express or implied

consent of the parties, they shall be treated in all respects as if they had been raised in the

pleadings. The Court, upon motion of any party at any time, may allow such amendment

of the pleadings as may be necessary to cause them to conform to the evidence and to

raise these issues. . . .”) with Fed. R. Civ. P. 15(b) (“When issues not raised by the

pleadings are tried by express or implied consent of the parties, they shall be treated in all

respects as if they had been raised in the pleadings. Such amendment of the pleadings as

may be necessary to cause them to conform to the evidence may be made upon motion of

9

of the duty of consistency. Under the duty, Petitioners were precluded from denying the

validity of the special use valuation election or that the property subject to the election

was initially put to a qualifying use.

When issues not raised by the pleadings are tried by the implied consent of the

parties, the issues must be treated as if they had been raised by the pleadings. Tax Ct.

R. 41(b). At any time, the Tax Court may allow amendment of the pleadings to cause

them to conform to the evidence and to raise these issues. Id. An amendment to conform

to the pleadings may be permitted when it clearly appears from the record that an issue

not raised in the pleadings has been tried with the express or implied consent of the

parties. Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 456 (10th Cir. 1982)

(discussing Rule 15(b)); Radio Corp. of America v. Radio Station KYFM, Inc., 424 F.2d

14, 17 & n.3 (10th Cir. 1970) (same).2
any party at any time, even after judgment.”).

10

The parties provide implied consent when they recognized that the issue entered

the case at trial and acquiesced to the introduction of evidence on that issue without

objection. Hardin, 691 F.2d at 457. Even when a party does not consent and objects at

trial that evidence is outside the scope of the pleadings, amendment may still be allowed

unless the objecting party satisfies the court that he or she will be prejudiced by the

amendment. Id. The party opposing the amendment will be found to have consented to

the trial of an issue when that party presents evidence on the issue at trial. Id. But when

evidence claimed to show trial by consent is relevant to a separate issue already in the

case, and there is no indication that the party presenting the evidence intended to raise a

new issue by its introduction, the Tax Court has the discretion to deny the amendment,

id., and the moving party cannot raise a new theory of relief after the close of trial. Cook

v. City of Price, Carbon County, Utah, 566 F.2d 699, 702 (10th Cir. 1977). The determination of whether an issue was tried with the consent of the parties is within the discretion

of the trial court, whose decision is reviewed for an abuse of discretion. Hardin, 691 F.2d

at 457; Ellis v. Arkansas Louisiana Gas Co., 609 F.2d 436, 439 (10th Cir. 1979), cert.

denied, 445 U.S. 964 (1980).

We hold that the Tax Court did not abuse its discretion in finding that the issue of

the duty of consistency was tried by consent. The duty of consistency applies where a

taxpayer makes a representation or report, on which the Commissioner has relied, and
11

with respect to which the taxpayer attempts to change his or her position after the running

of the statute of limitations. See Continental Oil Co. v. Jones, 177 F.2d 508, 512 (10th

Cir. 1949), cert. denied, 339 U.S. 931 (1950); Eagan v. United States, 80 F.3d 13, 17 (1st

Cir. 1996). In her opening argument at trial, Respondent argued that Petitioners had

affirmatively applied for favorable treatment under the special use valuation election in

the estate tax return and made certain representations in support of the election, that the

IRS had accepted the return and afforded Petitioners the advantageous treatment, and that

Petitioners now wished to be released from the conditions attending the special use

valuation election. Petitioners understood the opening statement as raising the issue of

estoppel and objected. In spite of the objection, however, evidence was subsequently

introduced on the issue. For example, both parties explored the circumstances surrounding Petitioners’ filing of the estate tax return and the special use valuation election and

how Respondent interpreted them. Both parties and the Tax Court itself questioned

Petitioner William LeFever about the special use valuation election, his knowledge of the

consequences of the election, and his intentions in taking it. Moreover, no one disputes

that Petitioners made the election in filing the estate tax return or that Respondent

accepted the election as valid until it received Petitioners’ answers to the questionnaires

in 1990. In contrast to their position at the time of the filing of the estate tax return,

Petitioners now contend that the special use valuation election was invalid because the

property was not put to a qualifying use at or after the time of death.
12

Petitioners emphasize that they argued in a separate motion to the Tax Court, made

on the morning of trial, that Respondent had not pleaded any affirmative defenses,

including estoppel. Petitioners thus argue that they did not consent to the trial of the duty

of consistency. Again, however, even when a party does not consent and objects at trial

that evidence is outside the scope of the pleadings, amendment may still be allowed

unless the objecting party satisfies the court that he or she will be prejudiced by the

amendment. Tax Ct. R. 41(b)(2); Hardin, 691 F.2d at 456. Petitioners have not shown

that they were prejudiced within the meaning of Hardin. Petitioners merely contend that

“[T]here is no doubt the case would have been tried differently” and that they would have

moved for a continuance had they known that the issue of the duty of consistency was to

be tried. Petitioners do not articulate how the case would have been tried differently or

what a continuance would have accomplished. Petitioners argued in their motion to

reconsider leave to amend filed in the Tax Court that they would have called the IRS

examining officer and group manager who reviewed the special use valuation election at

the time it was filed to show that Respondent should have realized that the election was

invalid at the time of filing. However, such testimony would have been relevant to the

issue of when Respondent first received notice that the election was invalid. The issue of

such notice was first raised by paragraph 6 of Respondent’s answer, which alleges that
3 Section 2032A(f) provides that an assessment for an increase in estate taxes

under § 2032A(c) triggered by a disposition of the property or a cessation of a qualified

use may be made within three years “from the date the Secretary is notified” of such

disposition or cessation.

13

the additional assessments were timely under the extension provision of § 2032A(f).3

Thus, Petitioners had sufficient opportunity to prepare for and litigate the issue of the

Respondent’s notice regarding the validity of the election.

Admittedly, Respondent delayed until four months after trial to seek leave to

amend its answer to add an affirmative defense it should have raised in the pleadings

before trial. See Sundstrand Corp. v. Commissioners, 96 T.C. 226, 349 (1991). Respondent offered no explanation for the delay. Moreover, it should have been apparent that

the issue of the duty of consistency was important when, in their pretrial brief, Petitioners

contended the special use valuation election was invalid from the date of its filing and

attempted to disavow the election. We, however, will not substitute our judgment for that

of the Tax Court’s under the abuse of discretion standard, see United States v. Wright,

826 F.2d 938, 943 (10th Cir. 1987), and the record in this case does not show that the Tax

Court abused its discretion in affording Respondent leave to amend under Tax

Rule 41(b).

B. The Duty of Consistency

Petitioners also contend that the Tax Court misapplied the doctrine of the duty of

consistency to preclude them from denying the validity of the special use valuation
14

election or that parcels 2 through 5 had been put to a qualifying use at the time of Decedent’s death. Petitioners argue that the Tax Court did not apply the proper elements of the

duty of consistency, that a taxpayer cannot be bound by a representation that is a mistake

of law, and that they cannot be bound by representations made in the estate tax return

because they are not the same taxpayer as the one on whose behalf the estate tax return

was filed.

1.

The duty of consistency has developed along two lines. One line has treated the

duty as strictly analogous to traditional equitable estoppel and has required a showing that

the taxpayer made an intentional misrepresentation or a wrongful misleading silence in

obtaining favorable tax treatment. See, e.g., Lignos v. United States, 439 F.2d 1365,

1368 (2d Cir. 1971); Crosley Corp. v. United States, 229 F.2d 376, 380-81 (6th Cir.

1956); Piarulle v. Commissioner, 80 T.C. 1035, 1044 (1983). The other line has liberated

the application of the doctrine from the traditional requirements of equitable estoppel and

has only required a showing of a representation made by a taxpayer in obtaining favorable

tax treatment, and not an intentional falsehood or wrongful misleading silence. See, e.g.,

Eagan v. United States, 80 F.3d 13, 17 (1st Cir. 1996); Herrington v. Commissioner, 854

F.2d 755, 758 (5th Cir. 1988), cert. denied, 490 U.S. 1065 (1989); Arkansas Best Corp. v.

Commissioner, 83 T.C. 640, 659 (1984), aff’d in part and rev’d in part on other issues,

800 F.2d 215 (8th Cir. 1986), aff’d, 485 U.S. 212 (1988).
15

Petitioners rely on Uinta Livestock Corp. v. United States, 355 F.2d 761 (10th Cir.

1966), to support their position that only a strict application, akin to traditional estoppel,

of the duty of consistency is proper in this circuit. In Uinta, we addressed the two lines of

the doctrine’s development and expressly selected the strict interpretation. Id. at 766-67

(“[W]e believe after weighing the matter carefully that we must subscribe to the ordinary

rules of equitable estoppel.”). Petitioners contend that the Tax Court misapplied the

doctrine because it did not make a factual finding that Petitioners had made an intentional

misrepresentation or a wrongful misleading silence in making the special use valuation

election.

Although neither party brought it to our attention and we apparently overlooked it

in Uinta, we believe the issue of the proper elements the duty of consistency is controlled

by our earlier decision in Continental Oil Co. v. Jones, 177 F.2d 508, 512 (10th Cir.

1949), cert. denied, 339 U.S. 931 (1950). In Continental Oil, the corporate taxpayer

reported receiving a number of shares of common stock, items of taxable income, and

valued them at $1 per share in its 1927 tax return. In 1928, the IRS audited affiliated

companies who had reported receiving identical shares in 1927 and determined that the

proper cost basis for the shares was $244.31 per share instead of $1 per share. In 1941,

the corporate taxpayer sold its shares and reported a loss based on a cost basis of $244.31

per share. We affirmed the IRS’s disallowance of the loss, holding that the taxpayer was

precluded from shifting its position to the higher cost basis on the ground that it had
16

avoided income tax in 1927 by reporting the shares at $1 per share. We held that a

taxpayer is bound by the cost basis which it reported in receiving a tax benefit and could

not later take advantage of a loss on the sale of the shares by reporting the true cost basis

of the shares, “even though all the technical elements of estoppel [were] not present.” 

Continental Oil, 177 F.2d at 512. We precluded the taxpayer from contradicting its

previous representation without finding that it had made an intentional misrepresentation

or a wrongful misleading silence in the 1927 tax return. We noted that the valuation error

in 1927 could have been a simple mistake of fact. Id.

Because one panel of this court is bound by the precedent of an earlier panel

absent en banc reconsideration or a superseding contrary decision of the U.S. Supreme

Court, In re Smith, 10 F.3d 723, 724 (10th Cir. 1993), cert. denied, 115 S. Ct. 53 (1994),

the Continental Oil decision takes precedence over the Uinta decision, at least to the

extent Uinta may be read to require a showing of an intentional misrepresentation or a

wrongful misleading silence by a taxpayer in obtaining favorable tax treatment. See

Haynes v. Williams, 88 F.3d 898, 900 & n.4 (10th Cir. 1996) (“[W]hen faced with an

intra-circuit conflict, a panel should follow earlier, settled precedent over a subsequent

deviation therefrom.”). Moreover, dispensing with this culpability factor fosters better

tax administration and reduces unpredictability otherwise produced by the decisions

attempting to assess relative blame between the taxpayer and the IRS. See Steve R.

Johnson, The Taxpayer’s Duty of Consistency, 46 Tax. L.Rev. 537, 556-59 (1991)
17

(canvassing numerous cases in criticizing the incorporation of culpability factors into the

duty of consistency). It is a better rule to preclude a taxpayer from changing his or her

position based on the taxpayer’s having received a tax benefit on the basis of a specific

representation made to the IRS in an earlier year than to require a showing of an intentional misrepresentation or wrongful misleading silence by the taxpayer. See Elbo Coals,

Inc. v. United States, 763 F.2d 818, 821 (6th Cir. 1985) (disagreeing with Uinta rule

requiring an intentional misrepresentation); cf. United States v. Matheson, 532 F.2d 809,

819 (2d Cir.) (“Courts routinely hold that one gaining governmental benefits on the basis

of a representation or asserted position is thereafter estopped from taking a contrary

position in an effort to escape taxes.”), cert. denied, 429 U.S. 823 (1976); Union Pacific

R.R. Co. V. United States, 847 F.2d 1567, 1570 (Fed. Cir. 1988) (“When a party with

knowledge . . . of the material facts does what amounts to a recognition of the transaction

as existing . . . or abstains for a considerable length of time from impeaching it, so that the

other is reasonably induced to suppose that it is recognized, there is acquiescence, and the

transaction, though it be originally impeachable, becomes unimpeachable.”); R.H. Stearns

Co. v. United States, 291 U.S. 54, 61-62 (1934). The relative fault of the parties is less
4 The taxpayer’s intentions in making a given representation may, however,

be relevant in other contexts, such as in assessing the propriety of penalties. See

26 U.S.C. § 6651(a)(1) (imposing penalties for an improper report on a tax return unless

the misreport is due to “reasonable cause and not due to willful neglect”). In this case,

Respondent stipulated that Petitioners were not liable for the penalties under § 6651(a)(1).

18

important in a case in which the public, and not just the two parties, has an interest.4

 See

Johnson, supra, at 557.

2.

Petitioners point out the general rule that a taxpayer will not be precluded from

changing his or her position with respect to a representation that is a mistake of law as

opposed to a mistake of fact. See Eagan, 80 F.3d at 17; Herrington, 854 F.2d at 758; cf.

Continental Oil, 177 F.2d at 512. Petitioners contend that the representations made in

taking the special use valuation election that the properties qualified for the election under

§ 2032A are conclusions of law to which the duty of consistency cannot be applied.

While the determination of whether particular property qualifies for the special use

valuation election involves issues of law, the validity of Petitioners’ election with regard

to parcels 2 through 5 turns on the facts regarding the actual use of the parcels. The

relevant rule of law is undisputed. Cash rental of farmland to a nonfamily member does

not constitute a qualified use. Brockman, 903 F.2d at 522. As the Tax Court noted, the

facts regarding the actual use of the parcels were peculiarly within the knowledge of

Petitioners. At best, Petitioners’ representations involve a mixed question of law and fact
19

to which the duty of consistency may be applied. Eagan, 80 F.3d at 17; Herrington, 854

F.2d at 758.

3.

Next, Petitioners argue that the duty of consistency does not apply because

Petitioners are not the taxpayers who made the representations underlying the special use

valuation election. Estate tax is imposed on the transferred estate of a decedent. 

26 U.S.C. § 2001(a). The tax under § 2001(a) must be paid by the executor of the estate. 

Id. § 2002. In contrast, the additional tax imposed in the event of a disposition of a piece

of qualified real property or the cessation of a qualifying use is imposed on the qualified

heirs. Id. § 2032A(c)(5).

Some authority exists for Petitioners’ position that an heir should not be bound by

representations of the estate’s executor. See Ford v. United States, 276 F.2d 17 (Cl. Ct.

1960) (refusing to require heirs to use as the basis in inherited stock the valuation selected

by the executor where the heirs were minors who resided in Brazil and had no relevant

knowledge); but see Hess v. United States, 537 F.2d 457 (Cl. Ct. 1976) (requiring under

the duty of consistency the heirs to use as the basis for inherited stock the value reported

by the executor even though the heirs were minors and were not personally involved in

reporting the value), cert. denied, 430 U.S. 931 (1977). However, the duty of consistency

is usually understood to encompass both the taxpayer and parties with sufficiently

identical economic interests. See Johnson, supra, at 549-50 & n.73. In this case,
20

Petitioner William LeFever was the executor of Decedent’s estate. He filed the special

use valuation election. 26 U.S.C. § 2032A(d)(1). He and Petitioner Betty Lou LeFever

provided the information on which their accountant based the election. They both signed

a consent form to the taking of the election. Lastly, as the qualified heirs of parcels 2

through 5, Petitioners had an economic interest in reducing the value of the taxable estate

in 1984. Petitioners had sufficient privity of interest with the estate’s executor for the

application of the duty of consistency.

In sum, the Tax Court properly applied the duty of consistency. The doctrine

applies where a taxpayer makes a representation or report, on which the Commissioner

has relied, and with respect to which the taxpayer attempts to change his or her position

after the running of the statute of limitations. See Continental Oil, 177 F.2d at 512;

Eagan, 80 F.3d at 17; Herrington, 854 F.2d at 758. In this case, Petitioners represented

that parcels 2 through 5 qualified for the special use valuation election in the estate tax

return and supporting documents. Herrington, 854 F.2d at 758. At trial, William LeFever

testified that he made the election to gain favorable tax treatment. Respondent relied on

the representation and afforded Petitioners the benefits of the election and allowed the

statute of limitations to run. Id. Lastly, Petitioners seek now to disavow the election after

the running of the limitations period in order to avoid paying the additional estate taxes. 

Id.
21

4.

Finally, Petitioners argue that the Tax Court erred in not ruling that Respondent

was also bound under the duty of consistency. They contend that Respondent made a

representation that the use to which parcels 2 through 5 were being put before Decedent’s

death was a qualifying use by accepting the special use valuation election without protest

or audit at the time of its filing in April 1984. Because Petitioners continued to use the

parcels in the same way after Decedent’s death, Petitioners argue that Respondent is

bound by her “representation” and cannot now claim that the use is not a qualifying use.

Aside from the general problems associated with applying a doctrine like estoppel

against the government, see, e.g., Penny v. Giuffrida, 897 F.2d 1543, 1546 (10th Cir.

1990), Respondent’s acquiescence to Petitioners’ election under the facts of this case does

not constitute the sort of representation to which Respondent may be bound. As discussed below, Respondent did not have notice of the invalidity of the special use valuation election until it received the answers to the questionnaires provided by Petitioners in

August 1990 and February 1991.

C. Statute of Limitations

Petitioners contend that the Tax Court erred in failing to rule that the assessments

for additional estate tax under § 2032A(c) were untimely under the Code’s general threeyear statute of limitations set forth in 26 U.S.C. § 6501(a). Petitioners point out that

Decedent’s estate tax return was filed April 24, 1984, and that the assessments at issue
5 The subsection provides:

(f) Statute of Limitations.--If qualified real property is disposed of or ceases to be

used for a qualified use, then--

(1) the statutory period for the assessment of any additional tax under

subsection (c) attributable to such disposition or cessation shall not expire

before the expiration of 3 years from the date the Secretary is notified . . . of

such disposition or cessation . . . .

26 U.S.C. § 2032A(f).

22

were dated July 22, 1992. Again, the Tax Court ruled that the assessments were timely

under § 2032A(f). This section provides that the period for the assessment of any

additional tax under § 2032A(c) is extended for three years from the date Respondent is

notified that qualified real property is disposed of or ceases to be used for a qualifying

use.5

Petitioners first contend that § 2032A(f) does not take precedence over the general

limitations period of § 6501(a) as it applies to “any tax imposed by this title.” 26 U.S.C.

§ 6501(a). Petitioners point out that the additional taxes under § 2032A(c) are not listed

in the exceptions to § 6501(a), see id. § 6501(c) (listing exceptions), and that Respondent

conceded at trial that the additional assessments at issue would be barred but for

§ 2032A(f). However, this contention is meritless as § 2032A(f)(2) specifically states,

“such additional tax may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent

such assessment.” Id. § 2032A(f)(2) (emphasis added).
23

Second, Petitioners contend that § 2032A(f) does not apply under the facts of this

case because the section applies by its terms only to additional assessments imposed in

the case of the disposition of qualified real property or the cessation of a qualifying use. 

Petitioners again point out that parcels 2 through 5 were never put to a qualifying use and

were never qualified real property. Thus, they contend that the extension under

§ 2032A(f) was never triggered. This argument, however, is simply a variation on

Petitioners’ attempt to disavow the validity of the special use valuation election and to

deny that parcels 2 through 5 were put to a qualifying use at the date of Decedent’s death. 

Again, Petitioners are precluded from making this argument under the duty of consistency.

Third, Petitioners contend that the three-year extension provided under § 2032A(f)

expired on April 24, 1987, because the estate tax return, the special use valuation election,

and the supporting documents, were sufficient to put Respondent on notice that the

special use valuation election was invalid on the day the estate tax return was filed. The

Tax Court specifically found that these documents would not have put Respondent on

notice that the special use valuation election was invalid. We accept this factual finding

regarding notice unless it is clearly erroneous and will not reverse unless after a review of

the record we are left with a definite and firm conviction that a mistake has been made. 

See Riley v. Commissioner, 649 F.2d 768, 773 (10th Cir. 1981).
24

Petitioners chiefly contend that the statement of material participation filed with

the estate tax return should have put Respondent on notice that the special use valuation

election was invalid at the date of its filing. See 26 U.S.C. § 2032A(b)(1)(C). Petitioners argue that James Kaufman, an IRS estate tax attorney, testified that the statement of

material participation was sufficient to raise questions about the validity of the special

use valuation election and that he would have probably selected it for audit had he been

the one reviewing it at the time it was filed. Characterizing Kaufman’s testimony as

uncontradicted, Petitioners contend that the Tax Court erred in not finding it conclusive.

Petitioners also contend that the face of the estate tax return shows various facts

fatal to the election. They contend that the return shows facts regarding the nonuse of

parcels 1 and 2 after 1966 and parcels 3 and 4 after 1980, the sparse use of parcel 5 by

Petitioners, the cash rental of certain parcels to nonfamily members, and the failure of

the claimed qualified real property to constitute the required proportions of the gross and

adjusted estate.

In contrast, Respondent points out the inconsistency of the argument that the very

documents by which Petitioners intended to show the IRS that they were entitled to the

special use valuation election are also supposed to constitute notice that the election was

invalid at the time of filing. Both William LeFever and his accountant, who prepared the

estate tax return, testified that they intended the estate tax return to show that the election

was proper. Also, Respondent points out that in the 48-page estate tax return, tenancies
25

are only mentioned four times, and none of these references specifically state that the

specially valued parcels were being cash rented to nonfamily members. Also,

Respondent notes that much of Petitioners’ argument as to the notice provided by the

estate tax return is bolstered by either testimony or documentary evidence which was not

included in the estate tax return.

We have reviewed the estate tax return, the special use valuation, and the

supporting documents, including the statement of material participation. On the whole,

these materials manifest the intent of the executor and qualified heirs, who signed

agreements to the claiming of the election, to represent to Respondent that the special

use valuation election was proper. The references to facts which would suggest that the

election was improper are sparse and ambiguous. For example, none of the references to

tenancies in the return unambiguously report that the parcels were being cash rented to

nonfamily members. Moreover, in spite of Petitioners’ characterization of Kaufman’s

testimony as uncontradicted, the estate tax return and the supporting documentation can

serve as a basis for discounting his testimony that he “probably” would have selected the

return for an audit. A review of the record does not leave us with a definite and firm

conviction that the Tax Court erred in finding that the return and supporting materials

would not have notified Respondent that the election was invalid.

Given that the Tax Court did not clearly err in its finding on the notice issue, it 

properly ruled on the limitations issue. The estate tax return was filed in April 1984. 
26

Respondent sent Petitioners the first questionnaire regarding the election in July 1990. 

Petitioners answered the questionnaire on August 13, 1990. As the Tax Court found, this

response first notified Respondent that parcels 2 through 5 were not being put to a

qualifying use. Respondent then issued the notices of deficiency on July 22, 1992. 

Because the notices were issued within the three-year period set forth in § 2032A(f), they

were timely.
6 After deciding the issues in a tax case, the Tax Court may conduct separate

proceedings under Tax Court Rule 155 to allow the parties to submit computations

pursuant to the Tax Court’s determination of the issues, showing the correct amount of

the deficiency, liability, or overpayment to be entered. See Tax Ct. R. 155; Bankers

Pocahontas Coal Co. v. Burnet, 287 U.S. 308, 312-13 (1932).

27

D. Valuation Issues

First, Petitioners contend that the Tax Court erred in precluding Petitioners from

introducing evidence at trial that Respondent erroneously determined the taxable value

of the portions of parcels 2, 3, and 4 subject to the additional tax under § 2032A(c). 

Petitioners argue that they planned to show that Respondent’s calculations were so

erroneous as to be arbitrary and capricious and that Respondent should have had the

burden of proving the proper taxable value.

At trial, Petitioners questioned the IRS’s estate tax attorney about his calculation

of the additional estate taxes. The Tax Court interrupted the questioning, considering the

exact calculation of the amount of the additional taxes to be irrelevant to the issue of

Petitioners’ liability for the additional taxes. The Tax Court stated that Petitioners could

present evidence relevant to the tax calculation in any proceedings under Tax Court

Rule 155.6 The Tax Court subsequently afforded the parties an opportunity to schedule

an evidentiary hearing in connection with the Rule 155 proceedings, and neither party

did so. We see no reversible error in the Tax Court’s actions.

Second, Petitioners contend that the Tax Court erred in finding that no evidence

on the record supported a lesser fair market value for the 110 acres of pasture land in
7 Specifically, Respondent used the $149,000 total fair market value of

parcel 2 divided by the parcel’s 160 total acres for an average value of $931.25 per acre. 

Respondent then multiplied the average per acre value of $931.25 by the 110 acres of

pasture land for a fair market value of $102,437.50. Respondent used the total fair

market value for parcel 2 reported on the estate tax return and supported by a report from

Petitioners’ appraiser. Petitioners’ appraiser only reported the total fair market value for

parcel 2, based on comparable sales, and did not report any difference in value between

pasture land and cultivated land.

28

parcel 2 which were subject to additional taxes. We accept the Tax Court’s valuation of

the 110 acres unless they are clearly erroneous. Holl v. Commissioner, 54 F.3d 648, 650

(10th Cir. 1995).

Parcel 2 consists of the 110 acres of pasture land and 50 acres of cultivated land. 

The Tax Court accepted Respondent’s calculations of the fair market value for the 110

acres. Respondent calculated the fair market value of the 110 acres as $102,437.50. 

Most importantly, Respondent used the average per acre market value figure of $931.25

per acre derived from the total number of acres on parcel 2.7

Petitioners contend that the Tax Court erred in accepting Respondent’s calculation because pasture land is worth less than cultivated land. Petitioners argue that the

fair market value calculation of the pasture land should be reduced to reflect this fact.

The Tax Court properly rejected Petitioners’ contention because the fair market

value of the parcel for the purpose of the additional estate tax under § 2032A(c) reflects

the property’s highest and best use. 26 U.S.C. §§ 2032A(c), 2031(a); Brockman, 903

F.2d at 519. In contrast, the special use valuation reflects the value of the property as
29

farmland. 26 U.S.C. § 2032A(e)(7). The fact that the most feasible farming use for the

110 acres is apparently as pasture land is not relevant to its valuation at its highest and

best use in this case. In the estate tax return, Petitioners’ appraiser stated that the highest

and best use for parcel 2 was its use as a subdivision. Petitioners have not shown that the

Tax Court clearly erred in basing its valuation on the average per acre fair market value

of the total acres in parcel 2.

E. Attorneys Fees

As their last contention, Petitioners argue that the Tax Court erred in not allowing

a deduction from the value of the gross estate for the attorneys fees incurred in contesting the assessments of additional taxes. See 26 U.S.C. § 2053(a)(2) (allowing certain

deductions for administration expenses). The Tax Court disallowed the deduction on the

grounds that the additional taxes assessed by Respondent under § 2032A(c) against

Petitioners are distinct from any taxes assessable against the estate under § 2001, which

imposes the general estate tax against the decedent’s estate, and that Petitioners’

challenge to the additional taxes was not essential to the proper settlement of Decedent’s

estate. See Reilly v. Commissioner, 76 T.C. 369 (1981).

Section 2053(a)(2) allows deductions in the calculation of the value of the taxable

estate for administrative expenses, including attorneys fees, incurred in calculating the

estate tax imposed by § 2001. 26 U.S.C. 2053(a) (“For purposes of the tax imposed by

section 2001 . . . .”). Again, § 2001(a) imposes the general tax on the transfer of a
30

decedent’s estate. In contrast with this estate tax, § 2032A(c) imposes an additional

estate tax on qualified heirs personally. 26 U.S.C. § 2032A(c)(5); H.R. Rep. No. 1380,

94th Cong, 2d Sess. 26-27, reprinted in 1976 U.S.C.C.A.N. 3356, 3380-81. As Respondent points out, the tax imposed by § 2001 on Decedent’s estate is not at issue in this

case. In fact, Respondent acknowledges that the statute of limitations has since run on

any taxes which might have been assessed against the estate. The Tax Court did not err

in denying a deduction for attorneys fees.

III. Conclusion

The Tax Court did not abuse its discretion in affording Respondent leave to

amend her answer to conform to the evidence in order to raise the issue of the duty of

consistency based on its finding that the parties had tried the issue by consent. Likewise,

the Tax Court properly applied the duty of consistency to preclude Petitioners from

denying the validity of the special use valuation election or that the property was put to a

qualifying use at the time of Decedent’s death. Also, the Tax Court committed no

reversible error with regard to the calculation of the additional estate taxes. Lastly, the

Tax Court properly denied Petitioners a deduction for the attorneys fees incurred in

defending against the additional estate tax imposed against Petitioners personally. 

Accordingly, the judgment of the Tax Court is affirmed.

AFFIRMED.