Duty of Consistency in Tax Cases

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Last fall I wrote a post about the case of United States v. Holmes.  The post focused on the timeliness of a suit brought by the IRS to foreclose its lien and reduce its assessment to judgment.  Taxpayers argued that the IRS brought the suit too late.  The IRS argued that it timely filed the suit based on an extension of the statute of limitations on collection created by the filing of a request for a Collection Due Process hearing in the final year of the statute of limitations on collection.  The prior post focused on the need to consider the fact that a CDP request extends the statute of limitations on collection before making a request for a regular CDP hearing and that in many cases requesting a CDP equivalent hearing best serves a taxpayer’s interest because the equivalent hearing does not extend the statute of limitations.

Taxpayers lost the case in the district court because it determined that the CDP request held open the statute of limitations.  They appealed that loss and in early June they lost again in a 3-0 decision by the 5th Circuit.  In the prior post, I touched on the issue of the duty of consistency.  The 5th Circuit spends almost all of its time on this issue and I will focus on it here without going back over all of the facts discussed in the earlier post.

The taxpayers owed a fair amount of money but the IRS did not focus on their case until late in the statutory period for reasons not made known in the case.  When it finally focused on their case, it filed notices of federal tax lien and it sent a notice of intent to levy.  While I questioned in the earlier post whether requesting a CDP hearing in the final year of the statute of limitations on collection was a good idea, the taxpayers appear to have income and assets that could have been taken had they done nothing.  They sent by certified mail two requests for a CDP hearing.  The IRS seemed to have lost the requests and did not offer a hearing.  Taxpayer husband wrote back seven months later insisting that the IRS received his CDP request and enclosing the certified mail receipt showing that the IRS timely received the request.  The Appeals Office of the IRS then held a CDP hearing and sustained the proposed levy action.

In requesting dismissal of the suit as untimely, taxpayers argue that the IRS should not suspend the statute of limitations for the period from October to May during which it had misplaced the CDP requests.  The district court held that the taxpayers could not bludgeon the IRS for not recognizing their CDP requests and then argue that these requests should not suspend the statute of limitations on collection.  The Circuit Court agreed and went back through each of the three elements of the equitable principle of duty of consistency.

The first element requires a representation by the taxpayer.  Here, the taxpayers adamantly represented to the IRS that they mailed the CDP request.  The Circuit Court finds that these protestations and presentation of proof more than satisfied this element.

The second element requires that the IRS rely on the representation.  Here, it accepted the representation that the CDP requests were mailed in October and offered the CDP hearing requested by the taxpayers.

The third element requires that the taxpayer attempts to change or characterize the representation after the statute of limitations has run.  That is exactly what happened here.

Taxpayers argue that as a legal matter the doctrine of duty of consistency does not apply to situations such as this involving the collection of taxes but applies when a taxpayer takes an inconsistent position from one year to the next with an item like depreciation.  The Fifth Circuit rejected this argument pointing out that the principle involves a basic equitable question and citing to several cases that did not involve the type of narrow application sought by the taxpayers.  On the whole, the Holmes case provides good precedent for the IRS on the duty of consistency issue as well as a reminder to other taxpayers to carefully consider whether to request a CDP hearing late in the life of the statute.


  1. Keith – Thanks. This is a very helpful discussion of “duty of consistency” in tax cases, with the unusual aspect being the applicability to the procedural issue in a collection case. I think it would be very useful if you would use this as an introduction to the applicability of “duty of consistency” principles in the more common contexts alluded to in the last paragraph – where there’s been a non-fraudulent erroneous position taken on one or more income tax returns in closed years. Practitioners – especially tax return preparers – frequently encounter situations like this. The obligation to file an accurate income tax return for the current year requires addressing the implications of the prior year’s [or years’] erroneous position in deciding what position to take on the current return, with or without disclosure of the inconsistency. I used to see this regularly on partnership returns – including a case I remember where a general partnership with straight up allocations of all items of profit, loss, and capital had filed returns showing positive capital account balances for some partners, negative capital account balances for others, zero debt, and no obligation to contribute additional capital by those partners with deficits. I confess I haven’t checked to see how these issues are covered in Saltzman & Book.

  2. I fully concur with the court. I have handled many end of statute cases very successfully and the first order of the day is to do nothing that would extend the statute of limitations. In fact, I recently had a case where IRS levied wages shortly prior to the collection statute expiration. The client hired me post levy.

    The levy covered periods which were about to expire as well as periods which had several years to run. The old periods were for very large dollars and the more recent ones were relatively small.

    I wanted to get the case into Appeals for multiple reasons, but I did not want to extend the statute. I filed a 12153, but only did so for the more recent periods.

    Ultimately, I got everything I wanted without extending the statutes which subsequently expired. The taxpayer blew it and certainly cannot have it both ways.

    Extending the statute when it’s near expiration is incredibly foolish.

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