Duty of Consistency Precludes Taxpayers’ Argument

Duty of Consistency Precludes Taxpayers’ Argument
By James A. Beavers, J.D., LL.M., CPA, CGMA

A district court, based on the duty of consistency, rejected the taxpayers' argument that the IRS was barred from bringing a collection suit against the taxpayers by the 10-year statute of limitation under Sec. 6502.


In 1998, after auditing the estate of Shirley H. Bernhardt, the IRS issued a notice of deficiency to the estate for additional estate taxes. The estate contested the deficiency determination in Tax Court, and in a stipulated decision the Tax Court held that the estate owed a deficiency of $215,265 plus statutory interest. On July 16, 2004, the IRS reassessed the estate a deficiency of $223,309 and added interest in the amount of $108,704. The tax assessment amount differed from the amount ordered by the Tax Court due to a computational error by the IRS. On Sept. 15, 2004, the estate, through Kevin Holmes (a CPA and tax lawyer, as well as the husband of the estate's executrix, Barbara Holmes), responded to the assessment, stating its belief that it was inaccurate and requesting a second determination.

On Dec. 27, 2004, the IRS placed the estate's case in the revenue officer queue for collection, but the case was not assigned to a revenue officer until April 22, 2013. Subsequently, on Aug. 19, 2013, the IRS filed Notices of Federal Tax Liens in connection with the estate's unpaid taxes. On Sept. 27, 2013, the IRS sent the estate a final Notice of Intent to Levy and Notice of Right to a Hearing by certified mail. In the notice, the IRS advised the estate of its right to seek a collection due process or equivalent hearing (collectively, a CDP hearing). On Oct. 5, 2013, Mr. Holmes responded to the notice, by certified mail, with a Form 12153, Request for a Collection Due Process or Equivalent Hearing, along with a Form 2848, Power of Attorney and Declaration of Representative, properly executed by Barbara Holmes, authorizing Mr. Holmes to represent the estate in the hearing.

The IRS claimed that part of the estate's Oct. 5, 2013, package—specifically, the CDP hearing request—was misplaced due to the federal government shutdown from Oct. 1, 2013, to Oct. 16, 2013. As a result, the IRS was unable to locate the original Form 12153. However, the IRS was able to locate and process the Form 2848 that accompanied the request.

A dispute later arose regarding the timeliness of the estate's CDP hearing request. On May 2, 2014, Mr. Holmes mailed a letter containing a copy of the Oct. 5, 2013, CDP hearing request, stating that the original letter was sent by certified mail and later, on June 2, 2014, sent an additional letter reiterating the estate's position that the certified Oct. 5, 2013, package containing the CDP hearing request was timely received. In that letter, the estate also withdrew its request for a CDP hearing but demanded an equivalent hearing. The estate sent another request on July 8, 2014. On July 11, 2014, the IRS notified the estate that it accepted the estate's timely request for a CDP hearing.

On March 10, 2015, the IRS filed suit in district court against Mrs. Holmes, individually and in her official capacity as executrix of the estate, and against Mr. Holmes, individually, to collect the unpaid estate tax liability. The Holmeses, while acknowledging the tax liability, filed a motion for summary judgment, contending that the IRS was barred from collecting the liability because the 10-year statute-of-limitation period for filing suit under Sec. 6502 had expired. The government argued that the limitation period had not expired when it filed suit because the limitation period was suspended for 241 days under Sec. 6330 while the estate's CDP hearing was "pending" from Oct. 5, 2013, to June 2, 2014.

The Court's Decision

The district court held that the statute of limitation under Sec. 6502 did not bar the IRS's suit. The court found that the limitation period had not run when the IRS filed suit because the period had been suspended during the time the estate's request for a CDP hearing was pending.

Under Sec. 6330, the statute-of-limitation period under Sec. 6502 is suspended:

on the date the IRS receives the taxpayer's written request for a CDP hearing. The suspension period continues until the IRS receives a written withdrawal by the taxpayer of the request for a CDP hearing or the Notice of Determination resulting from the CDP hearing becomes final upon either the expiration of the time for seeking judicial review or upon exhaustion of any rights to appeals following judicial review [Regs. Sec. 301.6330-1(g)(2)]

The Holmeses argued that because the IRS had misplaced the Oct. 5, 2013, CDP hearing request, it would not be able to establish that it received the request for purposes of suspending the limitation period. Alternatively, they argued, at the very least, the IRS did not receive the request until May 2, 2014, when the estate resent a copy of the original request.

The court rejected this argument based on the duty-of-consistency doctrine, under which a taxpayer cannot take one position one year and a contrary position in a later year, after the limitation period has run. The elements of the duty of consistency are: (1) a representation or report by the taxpayer (2) on which the IRS has relied and (3) an attempt by the taxpayer after the statute of limitation has run to change the previous representation or to recharacterize the situation in such a way as to harm the IRS.

The Holmeses contended that the duty of consistency did not apply in their case because it does not apply to questions of law and only applies when a taxpayer adopts a factual representation for one tax year and adopts a different factual representation for a different tax year. The court found that the first contention was incorrect because the case did involve a question of fact—whether the IRS received the estate's first request for a hearing—and a question of law—whether the statute of limitation had run—and that the duty of consistency applied where there were questions of both fact and law. The court found that the second contention was incorrect because courts have held that the duty of consistency applied in cases like the Holmeses' "where a taxpayer has taken one position, garnering a tax benefit over many years, and attempts to change its position to garner another benefit."

Turning to the elements of the duty of consistency, the Tax Court found that all the elements for its application were met. The first element was met because Mr. Holmes had more than once represented in letters that the original request for a CDP hearing had been mailed to the IRS. The second element was met because the IRS had relied on Mr. Holmes's representation and granted the Holmeses a CDP hearing. Finally, the third element was met because the Holmeses were now arguing that the IRS did not receive the original hearing request. Thus, the duty of consistency precluded the Holmeses from asserting that the statute of limitation barred the IRS from collecting the liability they owed.


In one bright spot for the Holmeses, the district court, recognizing that the IRS made errors in the matter, denied the Service's request for relief against Mr. and Mrs. Holmes in their individual capacities. Any satisfaction for this success, however, is tempered by the fact that Mrs. Holmes was not relieved of her potential liability for the unpaid estate tax liabilities in her capacity as executrix.

Holmes, No. 4:15-cv-00626 (S.D. Tex. 8/16/16)   

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