105 T.C. No. 21

UNITED STATES TAX COURT

KRISTINE A. CLUCK, Petitioner v.

 COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18590-91. Filed October 30, 1995.

P is married to E. E is not a petitioner in this

case. E's mother, M, died in 1983, leaving E and his

brothers a tract of land (G). G was sold in 1984. P

and E have filed joint Federal income tax returns since

1986. P and E claimed net operating loss (NOL)

deductions on their 1987 and 1988 returns, consisting

of unused NOL's carried forward from E's 1983, 1984,

and 1985 returns and from P and E's 1986 joint return.

In 1989, after a dispute with R regarding the value of

G for purposes of M's estate's Federal estate tax

liability, E and his brothers, who each had owned a

one-fourth interest in G, entered into an agreement

with R. Pursuant to the agreement, G was valued at

$1,420,000. R disallowed the 1984 portion of the 1987

and 1988 NOL's on the ground that E had unreported

income from the sale of G in 1984, sufficient to

eliminate the 1984 loss. P argued that E did not have 

unreported income in 1984 because E's basis in G

was $625,000, which exceeded his amount realized

($619,425). R argued that P was estopped by the duty

of consistency from arguing that E's basis was greater
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1 Respondent disallowed a medical expense deduction of $1,366

and a miscellaneous deduction of $250 for tax year 1987. In her

(continued...)

than $355,000 (one-fourth the amount E had agreed G was

worth as of the date of M's death). 

1. Held: P and E are in a sufficiently close legal

and economic relationship so that P is estopped by E's 

representation, under the duty of consistency. Held, 

further, P cannot increase her 1987 and 1988 NOL for

previously unclaimed depreciation and amortization

deductions, because she has failed to substantiate her

entitlement to such deductions.

2. Held, further, additions to tax under secs.

6651, 6653, and 6661, I.R.C., are sustained.

Kevin P. Kennedy and Elwood Cluck, for petitioner.

Steven B. Bass, for respondent.

PARR, Judge: Respondent determined deficiencies in and

additions to petitioner's Federal income tax for taxable years

1987 and 1988 as follows:

 Additions to Tax 

 Sec. Sec. Sec. Sec.

Year Deficiency 6651 6653(a)(1)(A) 6653(a)(1)(B) 6661

1987 $7,013 $1,380 $620 1 $1,753

1988 35,574 13,398 2,856 -- 8,894

1 50 percent of the interest that is computed on the portion

of the underpayment which is attributable to negligence or

intentional disregard of rules and regulations.

Although petitioner filed joint returns with her husband,

Elwood Cluck (Elwood), Elwood is not a party herein because his

liability was determined and discharged in the U.S. Bankruptcy

Court for the Western District of Texas. Cluck v. United States,

165 Bankr. 1005 (W.D. Tex. 1993). After concessions,1 the issues
- 3 -

1(...continued)

petition, petitioner asserted that these deductions were

allowable; however, petitioner did not address these issues at

trial or on brief. Accordingly, we find that petitioner has

conceded these issues. Rule 151(e)(4) and (5); Petzoldt v.

Commissioner, 92 T.C. 661, 683 (1989); Money v. Commissioner, 89

T.C. 46, 48 (1987). 

2 All section references are to the Internal Revenue Code in

effect for the taxable years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure, unless

otherwise indicated. All dollar amounts are rounded to the

nearest dollar.

for decision are: (1) Whether petitioner is entitled to net

operating loss (NOL) deductions in the amounts claimed. This

turns on whether petitioner may claim that her husband had a

higher basis in property he inherited from his mother than that

stipulated by him as beneficiary/transferee in a prior estate

case in which an agreed decision was entered in this Court. 

Estate of Cluck v. Commissioner, Docket No. 10381-88 (August 29,

1989). We hold she may not. (2) Whether petitioner is liable

for the section 6651 addition to tax, because she failed to

timely file her 1987 and 1988 Federal income tax returns.2 We

hold that she is liable. (3) Whether petitioner is liable for

the addition to tax for negligence under section 6653 for the

years at issue. We hold that she is liable. (4) Whether

petitioner is liable for the substantial understatement penalty

under section 6661 for the years at issue. We hold that she is

liable. 

FINDINGS OF FACT
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3 By order dated Dec. 13, 1993, we granted respondent's motion

to compel stipulation and directed petitioner to file a response

to respondent's proposed stipulation of facts and to show cause

why the facts and evidence recited in such proposed stipulation

should not be accepted as established for purposes of this case. 

Petitioner's response to our show cause order was evasive and not

fairly directed at the proposed stipulation or any portion

thereof. Accordingly, on Jan. 12, 1994, we ordered that

respondent's proposed stipulation of facts be deemed stipulated

for purposes of this case. 

4 When a husband and wife file joint Federal income tax returns,

sec. 6013(d)(3) imposes joint and several liability upon each

spouse. The law of joint and several liability permits the

Internal Revenue Service (IRS) to assess one spouse for the tax

deficiency of the couple and to issue a deficiency notice to the

other spouse when it is unable to satisfy the claim. However,

the IRS is allowed to collect this single tax obligation only

once. Dolan v. Commissioner, 44 T.C. 420, 430 (1965).

Some of the facts have been stipulated or deemed stipulated

under Rule 91(f)(3).3 The stipulated facts and the accompanying

exhibits are incorporated into our findings by this reference. 

Petitioner, Kristine A. Cluck, resided in San Antonio, Texas, on

the date the petition was filed. 

Petitioner is still married to Elwood, who was an attorney

representing her in this case. Although Elwood is not a

petitioner, we have found a number of facts related to him, as

such facts are germane to the issues presented.4 

Petitioner and Elwood were married on July 24, 1984. For

the taxable years 1984 and 1985, Elwood filed his Federal income

tax returns as married filing separate. The record does not

establish whether petitioner filed Federal income tax returns for

either 1984 or 1985. Beginning in 1986 and continuing through
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the years at issue, petitioner and Elwood filed joint Federal

income tax returns. Petitioner and Elwood also filed amended

Federal income tax returns, Forms 1040X, for the taxable years

1987 and 1988. 

Petitioner and Elwood claimed an NOL deduction of $195,459

on their 1987 joint Federal income tax return. The 1987

deduction consisted of unused NOL's carried forward from Elwood's

1983, 1984, and 1985 Federal income tax returns and from

petitioner's and Elwood's 1986 joint Federal income tax return. 

Petitioner and Elwood reported the calculation of their 1987 NOL

deduction on a schedule attached to their 1987 return as follows:

1983 $10,083

1984 120,199

1985 25,005

1986 40,172

 Total 195,459

Petitioner and Elwood claimed an NOL deduction of $109,340

on their 1988 joint Federal income tax return. The 1988 NOL

deduction consisted of the same losses that make up the 1987 NOL,

reduced by $86,119, which was the amount of income offset by the

use of the 1987 NOL. Thus, petitioner and Elwood reported the

calculation of their 1988 NOL deduction on a schedule attached to

their 1988 return as follows:

1983 $10,083

1984 120,199

1985 25,005

1986 40,172

Less 1987 income (86,119)

 Total 109,340
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5 According to Elwood's testimony, the reason only one-half the

value of the Grapevine property was included in the decedent's

gross estate was that Elwood and his brothers believed that they

had inherited a one-half interest in the property in 1964, which

is the year their father died. 

The 1983, 1984, 1985, and 1986 NOL carryforwards, discussed

above, were incurred in various businesses operated by Elwood. 

In 1984, Elwood entered into a transaction which affects 

his reported 1984 loss, and therefore the NOL's reported by

petitioner and Elwood for the years at issue. 

Specifically, in 1984, Elwood sold a one-fourth interest in

a 149.67-acre tract of land located in Grapevine, Texas

(Grapevine property). Elwood had inherited this property from

his mother, Martha Cluck, who died July 29, 1983. Elwood's three

brothers owned the remaining three-fourths interest in the

Grapevine property, which they too had inherited from their

mother in 1983. 

Elwood prepared the Federal estate tax return for the Estate

of Martha Cluck (Estate), and he signed it as the Estate's

personal representative. The return included a one-half interest

in the Grapevine property in the decedent's gross estate, valued

at $527,250. An appraisal, attached to the return, valued a 100-

percent interest in the Grapevine property at $1,054,500.5

On March 29, 1984, Elwood and his brothers entered into a

contract for the sale of the Grapevine property to Joe L. Wright. 

Pursuant to a closing statement dated April 26, 1984, the Cluck
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6 Actually, Martha K. Cluck died intestate, and her four sons

were thus beneficiaries, and thus potentially liable as

transferees for any unpaid Federal estate tax owed by her estate.

brothers transferred the Grapevine property to Joe L. Wright for

a net sale price of $2,477,700. Each brother's share of the net

sale proceeds was one-fourth of $2,477,700, or $619,425. Elwood

did not report the sale of the Grapevine property on his 1984

Federal income tax return, on the theory that his basis in the

one-fourth interest sold was equal to or exceeded the proceeds he

received from the sale. 

On March 10, 1988, respondent issued a notice of deficiency

to the "Estate of Martha K. Cluck, Elwood Cluck, Executor"

(Estate case). In the notice, respondent determined that, on the

date of her death, Martha Cluck owned the entire 149.67 acres

located in Grapevine, Texas, rather than a one-half interest as

reported in the Estate's tax return. Respondent further

determined that the date of death fair market value of the

decedent's interest was $2,548,242, rather than $527,250 as

reported on the Estate's tax return. Respondent issued similar

notices to each of Elwood's three brothers, apparently naming

each as "Executor".6 Thereafter, Elwood and each of his brothers

timely filed petitions for redetermination with this Court. 

In his petition, Elwood alleged that respondent erred

in determining that Martha Cluck owned the entire 149.67 acres of

land located in Grapevine, Texas. He asserted that she owned
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7 Petitioner argues that evidence of the agreement between the

Cluck brothers and respondent is inadmissable under Rule 91(e),

because it was a stipulation which was used in another case. 

Although styled as a stipulation, the settlement is an agreement

between the parties which was deemed stipulated for purposes of

this case. See supra note 3. Furthermore, the agreement is

relevant and not barred by any evidentiary rule. We therefore

find that the agreement is admissible in this case. AMERCO &

Subs. v. Commissioner, 96 T.C. 18, 43-44 (1991), affd. on other

grounds 979 F.2d 162 (9th Cir. 1992).

only a one-half interest in the property on the date of her

death, and that the fair market value was $527,250. 

Alternatively, Elwood alleged that, in the event the Court

determined that Martha Cluck owned the entire legal interest in

the Grapevine property at the date of her death, the fair market

value thereof did not exceed $1,054,500. 

On November 25, 1988, we consolidated the cases of Elwood

and his brothers, and the consolidated case was set for trial. 

On February 27, 1989, Elwood and his brothers entered into an

agreement with respondent, styled "Stipulation of Settled

Issues."7 The agreement provided, among other things, that 100

percent of the value of the Grapevine property would be included

in Martha Cluck's gross estate. In addition, the parties agreed

that the fair market value of Martha Cluck's 100-percent interest

in the Grapevine property on the date of her death was

$1,420,000. Separate decisions were entered in the Estate case

as to each of the brothers based on the aforementioned agreement. 

This Court entered a decision in Elwood's case on August 29,

1989.
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8 Petitioner claimed a net operating loss deduction of $195,459

for 1987, and respondent allowed a net operating loss deduction

of $29,330. 

9 Petitioner made no arguments regarding her failure to elect to

forgo the carrybacks in both 1983 and 1985, and her returns for

those years do not contain such an election. Since petitioner

failed to make such an election, as required by sec. 172(b)(3),

the 1983 and 1985 losses must first be carried back to 1980 and

1982, respectively. It appears that Elwood had sufficient income

in 1980 and 1982 to absorb the 1983 and 1985 carrybacks, and

petitioner has not argued otherwise. Therefore, we find that the

portion of petitioner's 1987 and 1988 net operating losses

arising from the 1983 and 1985 loss carryforwards is not

allowable. Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92

T.C. 661, 683 (1989); Money v. Commissioner, 89 T.C. 46, 48

(1987). 

OPINION

Issue 1. The NOL's for 1987 and 1988

Respondent disallowed $166,129 of petitioner's claimed 1987

NOL deduction,8 and the entire NOL claimed for 1988. More

specifically, respondent adjusted the 1983, 1984, 1985, and 1986

losses that made up the 1987 and 1988 NOL's. Respondent

eliminated the 1983 and 1985 NOL's on the ground that petitioner

did not elect to carry such losses forward. Petitioner has

conceded this adjustment.9 Respondent also disallowed the

carryforward of the 1984 loss, on the ground that such loss was

eliminated by the unreported gain arising from the sale of the

Grapevine property, as discussed below. Finally, respondent

reduced the 1986 loss by $10,842, alleging that petitioner had
- 10 -

10 The amount of unreported income conceded by petitioner

exceeds $10,842. However, since respondent has not argued for an

increase in the deficiency, we treat petitioner's concession as

being limited to $10,842.

received unreported income in that amount. Petitioner conceded

this adjustment.10 

After conceding respondent's adjustments to the 1983, 1985,

and 1986 NOL carryforwards, petitioner asserts that the portion

of the 1987 and 1988 NOL's arising from the 1984 NOL carryforward

is allowable. Furthermore, petitioner asserts that she had

additional, unclaimed deductions during the period 1984 to 1988

which contribute to the NOL available in 1987 and 1988.

As a preliminary point, we note the well-settled rule that

the Commissioner may recompute a taxpayer's taxable income or

loss for a year in which the statute of limitations would

otherwise bar assessment in order to redetermine the amount of

the NOL deduction claimed in an open year. ABKCO Indus., Inc.

v. Commissioner, 56 T.C. 1083, 1089 (1971), affd. 482 F.2d 150

(3d Cir. 1973); State Farming Co. v. Commissioner, 40 T.C. 774,

783 (1963). Accordingly, in determining whether petitioner's

1987 and 1988 NOL's are allowable, respondent may recompute the

income or loss reported in the tax years which generated the

carryforwards claimed by petitioner in 1987 and 1988. 

A. 1984 Gain From Sale of Grapevine Property

Respondent argues that Elwood had sufficient unreported gain

arising from the sale of the Grapevine property in 1984 to
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11 Respondent has conceded that she has the burden of proof on

this issue, because the duty of consistency is an affirmative

defense. Rule 142(a). 

eliminate Elwood's claimed loss for that year. Accordingly,

petitioner would not be entitled to claim the 1984 NOL

carryforward as part of her 1987 and 1988 NOL deductions. 

Petitioner argues that Elwood did not have unreported gain on the

1984 sale of the Grapevine property, so the loss reported in

1984, which was carried forward to 1987 and 1988, was allowable. 

Gross income includes gains derived from dealings in

property. Sec. 61(a)(3). Gain derived from the disposition of

property is the excess of the amount realized over the property's

adjusted basis. Sec. 1001(a). The basis of property acquired

from a decedent is generally the fair market value of the

property as of the date of the decedent's death. Sec. 1014(a). 

This basis rule parallels the general rule of the estate tax for

determining the value of property which is included in a

decedent's gross estate under section 2031. Sec. 1.1014-1(a),

Income Tax Regs. 

The parties agree that Elwood realized $619,425 on the sale

of the Grapevine property, but disagree on Elwood's basis. 

Respondent argues that Elwood was bound by a duty of consistency

to use a basis of $355,000 when he sold the Grapevine property.11

The $355,000 amount is one-fourth of $1,420,000, the stipulated

value in the Estate case. In the alternative, respondent argues
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that Elwood's basis in the Grapevine property was $263,625, which

is one-fourth of the value which the appraisal attached to the

Estate's Federal estate tax return placed on the Grapevine

property as of the date of Martha Cluck's death. Petitioner

argues that the duty of consistency is inapplicable in this case

and that, under all the facts and circumstances of this case, she

has established that the Grapevine property had a fair market

value of $2,500,000 on the date of Martha Cluck's death, and

therefore Elwood had a basis of $625,000 when he sold his

interest in the Grapevine property. 

The "duty of consistency", sometimes referred to as quasiestoppel, applies in this Court. E.g., LeFever v. Commissioner,

103 T.C. 525, 541 (1994); Unvert v. Commissioner, 72 T.C. 807

(1979), affd. 656 F.2d 483 (9th Cir. 1981); Mayfair Minerals,

Inc. v. Commissioner, 56 T.C. 82 (1971), affd. 456 F.2d 622 (5th

Cir. 1972). The duty of consistency is based on the theory that

the taxpayer owes the Commissioner the duty to be consistent in

the tax treatment of items and will not be permitted to benefit

from the taxpayer's own prior error or omission. LeFever v.

Commissioner, supra. The duty of consistency doctrine prevents a

taxpayer from taking one position one year and a contrary

position in a later year after the limitations period has run for

the first year. Id. at 541-542. A taxpayer gaining governmental

benefits on the basis of a representation or an asserted position
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is thereafter estopped from taking a contrary position in an

effort to avoid taxes. Id. at 542. 

There are a number of justifications for the duty of

consistency, the most obvious being that taxpayers should not be

able to maintain inconsistent positions to obtain an unfair

advantage. As stated by the Court of Appeals for the Fifth

Circuit:

In adjusting values the Commissioner in effect represents 

the interests of all other taxpayers who must bear what the 

particular taxpayer unjustly escapes. It is no more right 

to allow a party to blow hot and cold as suits his interests

in tax matters than in other relationships. Whether it be 

called estoppel, or a duty of consistency, or the fixing of 

a fact by agreement, the fact fixed for one year ought to 

remain fixed in all its consequences, unless a more just 

general settlement is proposed and can be effected. * * * 

[Alamo Natl. Bank v. Commissioner, 95 F.2d 622, 623 (5th 

Cir. 1938), affg. 36 B.T.A. 402 (1937).]

Aside from eliminating the unfair advantage obtained by a

taxpayer who maintains inconsistent positions, the duty of

consistency also contributes to our self-reporting system of

taxation. As this Court has noted, to allow taxpayers "to

disavow their prior representations * * * would invite similar

intentional deceit on the part of other taxpayers seeking to gain

a tax benefit." LeFever v. Commissioner, supra at 544. 

Furthermore, this Court has noted that the duty of consistency

buttresses the values of finality and repose inherent in statutes

of limitation, and it possesses the administrative virtue of

eliminating the fact-finding problems associated with reviewing

old transactions, "when the evidence may be stale and
- 14 -

unavailable." Bartel v. Commissioner, 54 T.C. 25, 32 (1970);

McMillan v. United Sates, 14 AFTR 2d 5704, , 64-2 USTC par.

9720, at 93,839 (S.D. W. Va. 1964); see Johnson, "The Taxpayer's

Duty of Consistency", 46 Tax Law Rev. 537, 538, 544-549 (1991).

This Court has found that the duty of consistency applies

when:

 "(1) the taxpayer has made a representation or 

reported an item for tax purposes in one year,

(2) the Commissioner has acquiesced in or relied on 

that act for that year, and 

(3) the taxpayer desires to change the representation,

previously made, in a later year after the statute of 

limitations on assessments bars adjustments for the initial 

year." [LeFever v. Commissioner, supra at 543 (quoting 

Beltzer v. United States, 495 F.2d 211, 212 (8th Cir. 

1974)).]

Respondent argues that the foregoing triune standard has

been satisfied. Specifically, respondent argues Elwood made a

representation in the stipulation of settled issues that the

value of the Grapevine property for purposes of computing the

Estate's Federal estate tax liability was $1,420,000. Respondent

argues that, due to the relationship between Elwood and

petitioner, petitioner was bound by this representation. 

Respondent relied on this representation, allowing such value to

be used in computing the Estates's Federal estate tax liability. 

Finally, respondent argues that petitioner is now maintaining a

position inconsistent with the prior representation, after the

decision in the Estate case has become final, barring subsequent
- 15 -

adjustments to the Estate. Accordingly, respondent argues that

petitioner is estopped from arguing that Elwood's basis in the

Grapevine property was higher than one-fourth of the agreed value

of the Grapevine property in the stipulation of settled issues. 

Petitioner argues that the duty of consistency does not

apply in this case, since she was not a party to the stipulation.

In analyzing whether the duty of consistency applies, we

note that respondent's initial premise is that the duty of

consistency would estop Elwood from arguing that his basis in the

Grapevine property was greater than one-fourth of the amount

agreed to in the stipulation of settled issues. We agree with

respondent's threshold premise, as it comports with our decision

in LeFever v. Commissioner, 103 T.C. 525 (1994). 

However, even assuming the application of the duty of

consistency against Elwood, petitioner points out that Elwood is

not the taxpayer in this case. Petitioner asserts that she was

not a party to and did not enter into the stipulation of settled

issues, and therefore the first prong of the duty of consistency

test is not satisfied. Respondent argues that, due to the

relationship between Elwood and petitioner, petitioner was bound

by Elwood's representation. 

Several courts have held that the duty of consistency

doctrine prevents a beneficiary of an estate from repudiating an

estate tax value, where the beneficiary had been a fiduciary of

the estate. Beltzer v. United States, 495 F.2d 211 (8th Cir.
- 16 -

1974); Griffith v. United States, 27 AFTR 71-436, 71-1 USTC par.

9280 (N.D. Tex. 1971); McMillan v. United Sates, supra; accord

Hess v. United States, 210 Ct. Cl. 483, 537 F.2d 457 (1976). But

cf. Ford v. United States, 149 Ct. Cl. 558, 276 F.2d 17 (1960). 

In Beltzer, Griffith, and McMillan, the taxpayer beneficiary had

been a coexecutor or administratrix of the estate. In Hess, the

taxpayer was a testamentary trust whose trustees had been

coadministrators of the estate. By contrast, in Ford, where the

beneficiaries had not been estate fiduciaries, the quasi-estoppel

doctrine was rejected by the court. This Court has not

previously addressed this precise issue.

In Ford v. United States, supra, the decedent was a citizen

of the United States and a resident of Brazil. At the time of

his death, the decedent owned stock in a Brazilian corporation. 

Under Brazilian law, the stock passed from the decedent to his

two minor children. The executor of the decedent's estate used

the value established by Brazilian appraisers, after converting

the amount into dollars, for Federal estate tax purposes. The

Commissioner contested the method of computing the rate of

exchange but not the actual value of the stock. The executor

acquiesced on this issue, although other issues were litigated. 

Subsequently, after the children reached majority, they sold

their stock and claimed a basis substantially in excess of that

used for estate tax purposes. The U.S. Court of Claims held that

the duty of consistency did not estop the taxpayers from
- 17 -

12 Unlike the situation in Ford v. United States, 149 Ct. Cl.

558, 276 F.2d 17 (1960), petitioner was an adult and married to

Elwood in 1989 when he signed the agreement.

asserting that the stock had a value in excess of that used for

estate tax purposes. The court refused to bind the beneficiaries

to the estate's valuation of the stock because the taxpayers were

minors and had no knowledge of what was being written in their

father's estate tax return in the United States. Id. at 22.12

A number of courts have distinguished Ford, finding that a

taxpayer can, under appropriate circumstances, be estopped by a

representation made by or on behalf of a related taxpayer. E.g.,

Hess v. United States, supra; Beltzer v. United States, supra;

McMillan v. United Sates, supra. In Hess v. United States, supra

at 464, the court distinguished its own decision in Ford, finding

that the representation of an estate bound a testamentary trust

created by the estate. In reaching this decision, the court

found that, although the trust and the estate were separate legal

entities, it was "fair and in accord with the spirit of law, to

require the trust to act in a manner consistent with the estate",

because the two entities were "very closely related." Id.

In Beltzer v. United States, supra at 212-213, the U.S.

Court of Appeals for the Eighth Circuit held that a beneficiary

was bound by an estate's representation, distinguishing the Ford

case. In Beltzer, the taxpayer was a coexecutor of his father's

estate. The taxpayer inherited stock which had been reported in
- 18 -

the estate tax return as having a fair market value of $59,713 on

the date of his father's death, September 22, 1959. The time for

adjustments and assessments against the estate expired on

December 23, 1963. On May 6, 1966, the taxpayer sold the shares

for $140,000. For purposes of determining his gain on the sale

of the stock, the taxpayer asserted that the stock actually had a

fair market value of $118,020 on the date of his father's death,

despite the fact that he had signed the estate tax return at the

lesser figure and had received the benefit of the lower estate

tax. The taxpayer argued that he should not be bound by the

estate's representation of value, because he relied on his

coexecutor to handle the estate tax return. Rejecting the

taxpayer's nonparticipation argument, the Court of Appeals held

that the taxpayer was bound by the lower stock value reported by

the estate under the duty of consistency. Id. at 212. 

The teaching from Hess, Beltzer, and the other cases which

have found that a taxpayer may be estopped by a prior

representation made by or on behalf of another taxpayer is that

there must be a sufficiently close relationship between the party

making the prior representation and the party to be estopped. 

Hess v. United States, supra at 464; Beltzer v. United States,

supra at 212. Whether there is sufficient identity between the

parties will be dependent upon the facts and circumstances of the
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13 We believe the flexibility inherent in such an approach

comports with the spirit of our duty of consistency

jurisprudence. See Arkansas Best Corp. v. Commissioner, 83 T.C.

640, 659 (1984), affd. in part and revd. in part as to other

issues 800 F.2d 215 (8th Cir. 1986), affd. 485 U.S. 212 (1988)

(duty of consistency does not require the presence of all the

technical elements of estoppel); Unvert v. Commissioner, 72 T.C.

807, 814 (1979) (to same effect), affd. 656 F.2d 483 (9th Cir.

1981). 

 particular case.13 In this case, we believe there is a

sufficiently close relationship between the parties, since

petitioner and her husband have closely aligned legal and

economic interests. 

Petitioner and Elwood filed a joint Federal income tax

return for each of the tax years in issue and continued to do so

for 1989, the year in which the stipulation of settled issues was

executed by Elwood. We have previously noted that filing a joint

Federal income tax return generally results in tax savings to the

husband and wife. Benjamin v. Commissioner, 66 T.C. 1084, 1100

(1976), affd. 592 F.2d 1259 (5th Cir. 1979). However, in

accepting the benefit of filing jointly, the spouses also assume

joint and several liability for the payment of any tax due. Sec.

6013(d)(3). By filing a joint income tax return, petitioner and

Elwood entered into a joint economic arrangement, whereby they

shared the benefits and burdens associated with filing a joint

return. In addition to their economic relationship, petitioner

and Elwood were also in the legal relationship of marriage in

1989, when the stipulation was entered. Here we have two

individuals who have elected to be treated as a single taxpaying
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unit. Petitioner elected to be taxed not on her individual

earnings and deductions (a treatment she could have chosen) but

on the income and deductions of both spouses. Her tax liability

is therefore directly affected by her husband's stipulation in

the Estate case, agreeing to the value of the Grapevine property. 

Petitioner's husband (not she) was the one who allegedly incurred

the loss. If the loss is unavailable to him as a carryforward,

then it stands to reason that she is no more entitled to the loss

than he is. Under these circumstances, we hold that petitioner

is bound by the representations contained in that agreement.

The remaining two elements of the duty of consistency

standard are met. Respondent was bound to follow the stipulation

of settled issues, creating the necessary reliance by respondent. 

The third prong is met because petitioner is maintaining a

position in this case which is inconsistent with the stipulation

of settled issues, to respondent's detriment. Since all three

elements of the duty of consistency are satisfied, we hold that

petitioner is bound to use $355,000 as Elwood's basis in the

Grapevine property for purposes of determining the amount of gain

he realized on the sale of such property. 

We decline petitioner's invitation to redetermine the fair

market value of the Grapevine property as of the date of Martha

Cluck's death in 1983. We will not disturb the agreement between

respondent and Elwood, and we will not reexamine the stale

evidence regarding the 1983 value of the Grapevine property. See
- 21 -

Bartel v. Commissioner, 54 T.C. 25, 32 (1970). We find that

Elwood had unreported capital gain of $264,425 ($619,425 amount

realized over $355,000 basis). The effect of this ruling is that

the portion of petitioner's 1987 and 1988 NOL's attributable to

the 1984 loss carryforwards will be eliminated.

B. Additional Depreciation Deductions

Petitioner asserts that she is entitled to increase her

claimed 1987 and 1988 NOL's to reflect certain depreciation and

amortization deductions that were not claimed during the tax

years 1984 to 1988. Respondent contends that petitioner has not

substantiated her entitlement to such deductions. 

Deductions are strictly a matter of legislative grace, and

petitioner bears the burden of proving she is entitled to any

deductions claimed. Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435 (1934). A taxpayer is required to

substantiate claimed deductions by maintaining the records needed

to establish her entitlement to such deductions. Sec. 6001; sec.

1.6001-1(a), Income Tax Regs. 

Section 167 provides, in part, for a depreciation deduction

with respect to property used in a trade or business. 

Depreciation allows the taxpayer to recover the cost of the

property used in a trade or business or for the production of

income. United States v. Ludey, 274 U.S. 295, 300-301 (1927);

Southeastern Bldg. Corp. v. Commissioner, 3 T.C. 381, 384 (1944),

affd. 148 F.2d 879 (5th Cir. 1945). To substantiate entitlement
- 22 -

to a depreciation deduction, the taxpayer must show that the

property was used in a trade or business (or other profitoriented activity). In addition, the taxpayer must establish the

property's depreciable basis, by showing the cost of the

property, its useful life, and the previously allowable

depreciation. E.g., Delsanter v. Commissioner, 28 T.C. 845, 863

(1957), affd. in part and remanded in part 267 F.2d 39 (6th Cir.

1959).

To substantiate her entitlement to the additional

amortization and depreciation deductions, petitioner presented

testimony of her husband, Elwood, and a number of summary

schedules. According to petitioner, the summary schedules, which

were purportedly prepared by petitioner's accountant,

substantiate her entitlement to the claimed deductions. Although

petitioner indicated that the original documentation supporting

the schedules (canceled checks and receipts) was in the

courtroom, she did not offer it as evidence. In regard to this

documentation, the revenue agent that audited petitioner's

returns for the years at issue testified that he had, in the

company of petitioner's accountant, attempted to reconcile the

summary schedules with the alleged original documentation. 

According to the agent, the original information could not be

reconciled with the summary schedules. Furthermore, it appeared

to the agent that a number of the claimed depreciation deductions

arose from assets that belonged to another person or entity. 
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We are not required to accept the unsubstantiated testimony

of petitioner's husband, and we decline to do so. Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986). The summary schedules

provided by petitioner do not demonstrate her entitlement to the

claimed deductions. Petitioner neither called the accountant who

allegedly prepared the schedules to testify, nor offered any

documentation underlying the schedules. This dual failure gives

rise to the presumption that the evidence, if produced, would be

unfavorable. Wichita Terminal Elevator Co. v. Commissioner, 6

T.C. 1158 (1946), affd. 162 F.2d 513 (10th Cir. 1947). 

Therefore, we hold that petitioner is not entitled to use the

claimed depreciation and amortization deductions in the

computation of her 1987 and 1988 NOL.

Issue 2. Addition to Tax--Failure To Timely File

Section 6651(a)(1) provides for an addition to tax for

failure to file a Federal income tax return by its due date

determined with regard to any extension of time for filing,

unless it is shown that such failure is due to reasonable cause

and not due to willful neglect. Calendar year individual

taxpayers must file their Federal income tax return by April 15

following the close of the calendar year. Sec. 6072(a). The

taxpayer bears the burden of proof on this issue. Rule 142(a).

To demonstrate that petitioner did not timely file her 1987

and 1988 returns, respondent introduced a Form 4340, Certificate

of Assessments and Payments, for both 1987 and 1988, indicating
- 24 -

that petitioner filed her 1987 and 1988 tax returns on January 16

and September 7, 1990, respectively. Petitioner does not

contend, at trial or on brief, that she timely filed her 1987 or 

1988 Federal income tax return. Furthermore, she has not

attempted to prove reasonable cause for her failure to file

timely. Thus, we hold that petitioner is liable for the

additions to tax under section 6651(a)(1). 

Issue 3. Addition to Tax--Negligence 

In her notice of deficiency, respondent determined that

petitioner was liable for additions to tax for negligence under

section 6653(a)(1)(A) and (B) for 1987 and section 6653(a)(1) for

1988. Petitioner asserts that her actions were not negligent

and, therefore, she is not liable for such additions.

For 1987, section 6653(a)(1)(A) provides that if any part of

the underpayment is due to negligence or disregard of rules or

regulations, there shall be added to the tax an amount equal to 5

percent of the underpayment. Also for 1987, section

6653(a)(1)(B) imposes an addition to tax equal to 50 percent of

the interest payable under section 6601 with respect to the

portion of the underpayment attributable to negligence. For

1988, section 6653(a)(1) provides that if any part of the

underpayment is due to negligence or disregard of rules or

regulations, there shall be added to the tax an amount equal to 5

percent of the underpayment. 
- 25 -

Negligence under section 6653(a) is defined as a "lack of

due care or failure to do what a reasonable and ordinarily

prudent person would do under the circumstances." Neely v.

Commissioner, 85 T.C. 934, 947 (1985) (quoting Marcello v.

Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. in part

and remanding in part 43 T.C. 168 (1964)). The Commissioner's

determination that the taxpayer's underpayment was due to

negligence is presumed correct, and the taxpayer has the burden

of proving that the determination is erroneous. Rule 142(a);

Bixby v. Commissioner, 58 T.C. 757 (1972). Thus, petitioner must

show that she acted reasonably and prudently and exercised due

care in reporting her taxes. Neely v. Commissioner, supra.

Here, petitioner has failed to present any evidence that she

was not negligent in claiming the 1987 and 1988 NOL's. 

Accordingly, she has failed to meet her burden of proof;

therefore, we affirm respondent's determination on this issue. 

Issue 4. Addition to Tax--Substantial Understatement

Respondent determined that petitioner was liable for

additions to tax pursuant to section 6661 for tax years 1987 and

1988. 

Section 6661 provides that if there is a substantial

understatement of income tax, there shall be added to the tax an

amount equal to 25 percent of the amount of any underpayment

attributable to such understatement. Sec. 6661(a). The taxpayer

bears the burden of proving that the Commissioner's determination
- 26 -

as to the addition to tax under section 6661(a) is erroneous. 

Rule 142(a).

An understatement is the difference between the amount

required to be shown on the return and the amount actually shown

on the return. Sec. 6661(b)(2); Tweeddale v. Commissioner, 92

T.C. 501 (1989); Woods v. Commissioner, 91 T.C. 88 (1988). An

understatement is substantial if it exceeds the greater of $5,000

or 10 percent of the amount required to be shown on the return. 

Sec. 6661(b)(1). The understatement is reduced, however, to the

extent it is: (1) Based on substantial authority, or (2)

adequately disclosed in the return or in a statement attached to

the return. Sec. 6661(b)(2)(B). 

Petitioner made no arguments and presented no evidence

regarding the substantial understatement additions to tax. 

Therefore, petitioner has failed to carry her burden of proof as

to those items. Accordingly, if the recomputed deficiency under

Rule 155 attributable to those items satisfies the statutory

percentage or amount, petitioner will be liable for such

additions to tax.

To reflect the foregoing opinion and the concessions of the

parties,

Decision will be entered 

under Rule 155.