Opinion ID: 3038487
Heading Depth: 3
Heading Rank: 1

Heading: representation by the taxpayer

Text: [4] The Tax Court held that the first element, representation by the taxpayer, was satisfied by Conrad and Carroll’s agreement with the IRS’s valuation of the collection. Janis, 87 T.C.M. at 1329. This agreement is evidenced by extension of Form 890, in which they agreed, as executors of the estate, that the fair market value of the collection was $14,500,000. Petitioners argue that Form 890 is not properly used as a “representation by a taxpayer” because the form only constitutes the estate’s consent to an assessment of estate tax, and that the valuation has nothing to do with Petitioners’ joint tax returns. We are not persuaded by these arguments. [5] Conrad had overlapping and co-extensive interests as a beneficiary and co-executor of the estate. To allow Conrad to take inconsistent positions in the estate matter and then in his 1995-1997 joint tax returns filed with his wife Maria would gut the duty of consistency, which “is usually understood to encompass both the taxpayer and parties with sufficiently identical economic interests.” LeFever v. Comm’r, 100 F.3d 778, 788 (10th Cir. 1996). As an heir, Conrad had an economic interest in reducing the value of the taxable estate, and as a co-executor, he had privity of interest with the estate, thus making the duty of consistency appropriate under these the Tax Court from considering the doctrine. The Tax Court Rules of Practice and Procedure provide that “[w]hen 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.” Tax Court Rule 41(b) (2003). Petitioners implicitly consented to consideration of this issue; they did not object when the government raised the doctrine in its motion for summary judgment and in its trial memorandum. See Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir. 1993) (allowing affirmative defense that was raised for the first time in a summary judgment motion, where the opposing party did not object and was not prejudiced); see also Ahmad v. Furlong, 435 F.3d 1196 (10th Cir. 2006) (collecting cases). Their objection at this stage of the proceedings is far too late. 10022 JANIS v. CIR circumstances. See id. at 789 (holding that heirs to an estate were bound by the duty of consistency when they have economic interest and sufficient privity in the estate tax matters); see also Hess v. United States, 537 F.2d 457, 464 (Ct. Cl. 1976) (holding that when the taxpayer has sufficient economic interests in both an estate and a trust, then the taxpayer is bound to the earlier representation); Letts v. Comm’r, 109 T.C. 290, 298-99 (1997) (applying the duty of consistency to bind taxpayers to representations made on estate tax returns when those taxpayers were heirs and fiduciaries to the estate). In a case that is remarkably similar to the situation here, the Eighth Circuit held that a brother and sister who were coexecutors of and heirs to an estate were individually bound by the duty of consistency to their representations made in an estate tax return. Beltzer v. United States, 495 F.2d 211, 21113 (8th Cir. 1974). The sibling taxpayers represented the value of stock held by the estate as a reduced value, thereby minimizing the estate tax. Id. at 211. After inheriting the stock, the taxpayers sold the stock at a much higher value. Id. In order to circumvent the high capital gains tax on their individual tax returns, the taxpayers claimed the stock was undervalued when the estate tax was filed. Id. at 212. The IRS responded by pointing out that the statute of limitations had run on the estate tax return, which prevented the IRS from assessing a deficiency against the stock for the earlier undervalued representation. Id. The court held that the duty of consistency binds the taxpayers to the earlier estate tax representation. Id. at 212-13. Conrad was not only a beneficiary of the estate—giving him ample economic interest in minimizing the estate taxes— he was also a co-executor of the estate—giving him a clear fiduciary duty. As co-executor and beneficiary of the estate, Conrad had an incentive to minimize the value of the collection, thereby minimizing the estate’s tax and maximizing his inheritance. Once the estate was distributed, Conrad had an incentive to maximize the value of the collection to increase JANIS v. CIR 10023 the gallery’s net operating losses, which in turn reduced Petitioners’ taxable income. Petitioners seek to blunt this inconsistency by arguing that the blockage discount was warranted at death because the collection was valued as a whole but that similar concerns are not present after they inherited part of the gallery. Although this argument may have some surface appeal, it ignores the fact that the gallery collection remains largely intact and that the flip-flop in position is precisely the circumstance targeted by the duty of consistency. As we observed in Ashman, the duty of consistency is designed to prevent parties from “blow[ing] hot and cold as suits [their] interests in tax matters.” Ashman, 231 F.3d at 544 (internal quotation marks omitted). “[A] taxpayer may not, after taking a position in one year to his advantage and after correction for that year is barred, shift to a contrary position touching the same fact or transaction.” Id. at 543 (internal quotation marks omitted).