                  T.C. Memo. 1998-145



                UNITED STATES TAX COURT



          ESTATE OF HILDA ASHMAN, DECEASED,
PHILLIP ASHMAN, PERSONAL REPRESENTATIVE, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 15578-96.                    Filed April 22, 1998.



   In 1990, D received a distribution from a qualified
pension plan and reported that it was timely rolled
over pursuant to sec. 402, I.R.C. In 1993, D received
a distribution from the transferee plan. R determined
that the 1993 distribution is taxable income to D. The
1990 distribution was not timely rolled over, and the
period to assess tax for 1990 is expired. P contends
that the 1993 distribution is not taxable because the
taxable event occurred in 1990. R argues that P is
estopped under the duty of consistency from arguing
that the 1990 distribution was taxable. P argues that
appellate venue in this case would be to the Court of
Appeals for the Ninth Circuit, which does not recognize
the doctrine of the duty of consistency in tax
deficiency cases.
   Held: The 1993 distribution is taxable under the
duty of consistency.


Steven R. Mather and Elliott H. Kajan, for petitioner.

T. Ian Russell, for respondent.
                                - 2 -




              MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:    Respondent determined a deficiency in the

Federal income tax of decedent Hilda Ashman for the taxable year

1993 of $54,542 and a section 66621 accuracy-related penalty of

$10,908.   After concessions, the issue for our consideration is

whether a distribution received by decedent in 1993 from an

individual retirement account is included in her taxable income.

Respondent has conceded the penalty.

                          FINDINGS OF FACT

     The facts in this case have been fully stipulated, and the

case was submitted to the Court under Rule 122.      At the time the

petition was filed, the personal representative of the estate

resided in Newport Beach, California.

     On December 19, 1990, decedent received a $725,502

distribution from a pension plan that was qualified under section

401 (1990 pension distribution).   On February 27, 1991, decedent

deposited $101,127.85 into an account with Great Northern Insured

Annuity Corp. (GNA).   The deposit consisted of $100,502.21 from

the 1990 pension distribution plus interest thereon.      Decedent

made the deposit into the GNA account more than 60 days after she

received the 1990 pension distribution.      Accordingly, the GNA

deposit did not qualify as a timely rollover of the 1990 pension


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                  - 3 -


distribution, and $100,502.21 of the 1990 pension distribution

was not entitled to tax-deferred rollover treatment.

     On her 1990 Federal income tax return, decedent reported

that the entire amount of the $725,502 pension distribution,

including the amount deposited with GNA, was nontaxable because

it was timely rolled over.   In a statement attached to the

return, decedent reported that she received a distribution of

$725,502 from “Golden State” and rolled over the entire amount

into an account with “Merrill Lynch”.

     In 1993, decedent received two distributions from GNA that

totaled $99,632 (GNA distribution).        GNA issued to respondent a

Form 1099-R (Distributions From Pensions, Annuities, Retirement

or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) that

reported a gross distribution to decedent in the amount of

$101,656 and a taxable distribution of $99,632.       On her 1993

income tax return, decedent did not report the GNA distribution

as taxable income.   The period for assessment of an income tax

deficiency for taxable year 1990 has expired.

                                 OPINION

     In general, distributions from qualified retirement plans

are included in the income of the distributee in the year of

distribution.   Secs. 72, 402.    An exception exists if the

distribution is rolled over into an eligible retirement plan

within 60 days of receipt of the distribution.       Sec.

402(a)(5)(C).
                               - 4 -


     Petitioner argues that the 1993 GNA distribution is a

nontaxable return of principal.   Petitioner contends that the

taxable event with respect to the GNA distribution occurred

during 1990, and not during 1993, because the 1990 pension

distribution was not timely rolled over pursuant to section

402(a).   Respondent argues that petitioner is estopped under the

duty of consistency from denying that there was a timely rollover

of the 1990 pension distribution as reported on decedent's 1990

return.   Petitioner argues that the duty of consistency is not a

viable judicial doctrine.   Alternatively, petitioner argues that

the duty of consistency does not apply in this case.2

     The duty of consistency, or quasi-estoppel, is an equitable

doctrine that prevents a taxpayer from adopting a position for a

particular year and, after the period of limitations has expired

for that year, adopting a contrary position that affects his or

her tax liability for an open year.    E.g., Herrington v.

Commissioner, 854 F.2d 755, 757 (5th Cir. 1988), affg. Glass v.

Commissioner, 87 T.C. 1087 (1986); LeFever v. Commissioner, 103

T.C. 525, 541-542 (1994), affd. 100 F.3d 778 (10th Cir. 1996).

The duty of consistency applies when:   (1) The taxpayer made a

representation or reported an item for Federal income tax

purposes in one year, (2) the Commissioner acquiesced in or


     2
        Petitioner also contends that respondent reneged on a
settlement proposal and asserted the duty of consistency on the
eve of trial. In this regard, petitioner argues that we should
not grant equitable relief to respondent through the duty of
consistency because respondent has unclean hands. We find this
aspect of petitioner's argument to be without merit.
                               - 5 -


relied on that representation or report for that year, and (3)

the taxpayer attempts to change that representation or report in

a subsequent year, after the period of limitations has expired

with respect to the year of the representation or report, and the

change is detrimental to the Commissioner.   LeFever v.

Commissioner, supra at 543; see also Herrington v. Commissioner,

supra at 758; Shook v. United States, 713 F.2d 662, 667 (11th

Cir. 1983); Beltzer v. United States, 495 F.2d 211, 212 (8th Cir.

1974); Cluck v. Commissioner, 105 T.C. 324, 332 (1995).     When

these requirements are met, the Commissioner may treat the

previous representation by the taxpayer as true, although, in

fact, it is not.   Herrington v. Commissioner, supra.     The duty of

consistency is an affirmative defense raised by respondent, and

respondent has the burden of showing that it applies.     Rule

142(a).

     Before we consider whether or not the three elements of the

duty of consistency are present in this case, we address

petitioner's argument that the duty of consistency is not a

viable equitable doctrine.   Petitioner relies on two alternative

positions for this argument.   First, petitioner argues that the

Court of Appeals for the Ninth Circuit does not recognize the

duty of consistency in tax deficiency proceedings.   In the

alternative, petitioner argues that the recent Supreme Court

decision in United States v. Brockamp, 519 U.S. ___, 117 S. Ct.

849 (1997), questions the continued viability of the duty of

consistency as equitable relief in the Tax Court.
                                - 6 -


     Petitioner argues that appellate venue would be to the Court

of Appeals for the Ninth Circuit.    It is not entirely clear from

the record to which Court of Appeals this case is appealable.

The parties did not stipulate the decedent’s domicile at the time

of her death.   The estate’s personal representative resided in

California when the petition was filed.    We assume that this case

is appealable to the Court of Appeals for the Ninth Circuit for

the purpose of addressing petitioner’s argument.

     Petitioner concedes that the Court of Appeals for the Ninth

Circuit has applied the duty of consistency in tax refund cases.

See Building Syndicate Co. v. United States, 292 F.2d 623 (9th

Cir. 1961); Shanafelt v. United States, 80 AFTR 2d 7668, 97-2

USTC par. 50,908 (D. Or. 1997); Johnston v. United States, 605 F.

Supp. 26 (D. Mont. 1984).    Petitioner distinguishes refund

proceedings because they are equitable in nature.    The Court of

Appeals has not placed special emphasis on the equitable nature

of refund proceedings when applying the duty of consistency

doctrine in refund cases.3   See Building Syndicate Co. v. United



     3
        Petitioner argues that the decision by the Court of
Appeals for the Ninth Circuit to apply the duty of consistency
doctrine in the tax refund case Building Syndicate Co. v. United
States, 292 F.2d 623 (9th Cir. 1961), was "based substantially on
the equitable nature of a refund proceeding." We disagree. The
Court did not explain that it was basing its decision on the
equitable nature of tax refund cases, rather, it simply cited
Stone v. White, 301 U.S. 532 (1937), in dicta, as a reference for
the equitable nature of tax refund suits. We note further that
Building Syndicate quoted with approval from Alamo Natl. Bank v.
Commissioner, 95 F.2d 622 (5th Cir. 1938), a deficiency
proceeding originating in the Board of Tax Appeals, wherein
equitable principles in the nature of estoppel were applied.
                               - 7 -


States, supra.   Moreover, we apply equitable principles in cases

within our jurisdiction.   See Woods v. Commissioner, 92 T.C. 776

(1989).

     Petitioner also contends that the Court of Appeals for the

Ninth Circuit criticized the duty of consistency in Unvert v.

Commissioner, 656 F.2d 483, 486 n.2 (9th Cir. 1981), affg. 72

T.C. 807 (1979), as requiring case-by-case adjudication.   In

Unvert, the taxpayers recovered an amount that they had

previously deducted.   The deduction was improper when claimed.

The Court of Appeals rejected the erroneous deduction exception

to the tax benefit rule and required the taxpayer to report the

amount recovered as income to offset the prior improper

deduction.   In that case, the Tax Court had relied on the duty of

consistency to hold the taxpayer to the prior, incorrect

representation and required the taxpayer to report the income.

Unvert does not stand for a rejection of the duty of consistency

by the Ninth Circuit as petitioner argues.   Rather, Unvert

declined to recognize an exception to the tax benefit rule,

evidencing a liberal approach by the Ninth Circuit to equitable

principles in tax deficiency proceedings.

     In Wentworth v. Commissioner, 244 F.2d 874 (9th Cir. 1957),

affg. 25 T.C. 1210 (1956), the Court of Appeals for the Ninth

Circuit applied certain equitable principles similar in operation

and effect to the duty of consistency doctrine in a tax

deficiency case.   The taxpayer had received a corporate

distribution in a prior year and did not report the distribution
                                - 8 -


as income.   In a subsequent year, the taxpayer received a second

corporate distribution and argued that it was a nontaxable

repayment of a loan made by the taxpayer to the corporation.     The

Court of Appeals held that the failure to report the first

distribution as income was a representation that the distribution

was a loan repayment.    The court then held that the taxpayer

could not argue that the second distribution was for repayment of

the loan and had to report the distribution as a taxable dividend

from the corporation.    Although contemporaneous duty of

consistency terminology was not employed by the court in

Wentworth v. Commissioner, supra, the opinion rests on the

principles of that doctrine.    See Estate of Letts v.

Commissioner, 109 T.C. 290 (1997).

     Based on our review, the Court of Appeals for the Ninth

Circuit does recognize the duty of consistency as a viable

judicial doctrine and has not limited its use to tax refund

cases.   Furthermore, we have considered and applied the duty of

consistency doctrine in cases appealable to the Court of Appeals

for the Ninth Circuit.    See Koppen v. Commissioner, T.C. Memo.

1995-316; Erickson v. Commissioner, T.C. Memo. 1991-97; Coldiron

v. Commissioner, T.C. Memo. 1987-569.    In the absence of a clear

mandate from the Court of Appeals for the Ninth Circuit, we are

not compelled to hold the duty of consistency doctrine

inapplicable in tax deficiency cases appealable to that Circuit.

Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970), affd. 445

F.2d 985 (10th Cir. 1971).
                                 - 9 -


     Nor do we understand the Supreme Court decision in United

States v. Brockamp, supra, to undermine the use of the duty of

consistency doctrine by lower courts.    This Court has applied the

duty of consistency as a quasi-equitable doctrine in numerous

cases, most recently in Estate of Letts v. Commissioner, supra.

The duty of consistency is founded on R.H. Stearns Co. v. United

States, 291 U.S. 54 (1934), in which the Supreme Court held that

equitable principles apply in tax cases.    In United States v.

Brockamp, supra, the Supreme Court held that the statutory period

to file a tax refund claim is not tolled for nonstatutory

equitable reasons.   The duty of consistency was not the subject

matter of the Brockamp Court.    Petitioner, nevertheless, argues

that the duty of consistency is an equitable exception to the

statute of limitations and that Brockamp provides there are no

equitable exceptions to the period of limitations.    The statute

of limitations is not tolled or changed by the application of the

duty of consistency because the resulting tax is being determined

and assessed for an open year.     Herrington v. Commissioner, 854

F.2d 755, 757 (5th Cir. 1988).    Moreover, we have previously

found that the duty of consistency contributes to the finality

and repose of the statute of limitations by holding taxpayers to

the reporting of an item in a closed year.     Cluck v.

Commissioner, 105 T.C. at 332; Mayfair Minerals, Inc. v.

Commissioner, 56 T.C. 82, 86 (1971), affd. per curiam 456 F.2d

622 (5th Cir. 1972); Bartel v. Commissioner, 54 T.C. 25, 32

(1970).   Accordingly, the decision in United States v. Brockamp,
                               - 10 -


supra, does not preclude our use of the principles of the duty of

consistency doctrine.    We now consider whether the required

elements of the duty of consistency are present in this case.

(1)   Decedent’s Representation for 1990

      With respect to the first element, petitioner contends that

decedent did not make a representation of fact on her 1990

return.    Rather, petitioner argues that decedent misinterpreted

the law as to whether the GNA deposit qualified for rollover

treatment and misrepresented the legal consequences of her

actions.    Petitioner contends that whether the pension

distribution qualified for rollover treatment is a question of

law to which the duty of consistency does not apply.     The duty of

consistency applies if the inconsistency involves a question of

fact or a mixed question of fact and law; it does not apply to a

mutual mistake on the part of a taxpayer and the Internal Revenue

Service concerning a pure question of law.    LeFever v.

Commissioner, 100 F.3d at 788; Herrington v. Commissioner, supra.

The question of whether a timely rollover of a pension

distribution was attempted or completed in this case is either a

question of fact or a mixed question of fact and law to which the

duty of consistency would apply.   Before a mutual mistake of law

can occur, both parties must know the facts, see Unvert v.

Commissioner, 72 T.C. 807, 816 (1979). We find that respondent

knew or was put on notice, before the expiration of the

assessment period for decedent’s 1990 income tax, that the
                              - 11 -


rollover was not accomplished within the requisite 60 days.    See

also Eagan v. United States, 80 F.3d 13 (1st Cir. 1996).

     A taxpayer's approach to reporting of an item on a tax

return can be accepted as a representation that facts exist that

are consistent with the manner of reporting.    Estate of Letts v.

Commissioner, supra.   On her 1990 return, decedent reported that

the entire amount of the 1990 pension distribution was timely

rolled over into an eligible retirement plan and that the taxable

portion of the pension distribution was zero.   Although decedent

did not report the date of receipt of the pension distribution or

the date of the rollover, she represented that facts existed to

support the tax-deferred rollover treatment of the pension

distribution.

(2) Respondent’s Reliance or Acquiescence of the Item Reported
for 1990

     The Commissioner acquiesces or relies on a representation of

the taxpayer when the taxpayer files a return that contains an

inadequately disclosed item and respondent accepts that return

and allows the period of limitations to expire without an audit

of that return.   Herrington v. Commissioner, supra; Mayfair

Minerals, Inc. v. Commissioner, supra at 91; see Spencer Med.

Associates v. Commissioner, T.C. Memo. 1997-130; Hughes & Luce,

L.L.P. v. Commissioner, T.C. Memo. 1994-559, affd. on another

issue 70 F.3d 16 (5th Cir. 1995).   Respondent cannot rely on a

representation made by a taxpayer if the taxpayer has provided
                               - 12 -


sufficient facts to respondent so that respondent knew or ought

to have known of a possible mistake in the reporting of an item.

     Petitioner contends that it was unreasonable for respondent

to rely on decedent's 1990 return because the $725,502 pension

distribution was a highly material item.    Petitioner contends

that respondent chose not to audit decedent's 1990 return because

of poor judgment.   We disagree.   The Commissioner may rely on

representations in a return signed under penalties of perjury

absent sufficient facts that provide actual or constructive

knowledge to the contrary.    Estate of Letts v. Commissioner,

supra; Hughes & Luce, L.L.P. v. Commissioner, supra.    The

reasonableness of the Commissioner's reliance does not change,

per se, because of the mere size of the item reported by the

taxpayer on the return.

     We find that respondent did not know or have reason to know

that decedent erroneously claimed rollover treatment for a

portion of the 1990 pension distribution.    Petitioner maintains

that the pension distribution and attempted rollover were fully

disclosed on decedent's 1990 return.    However, decedent did not

disclose the dates of either the pension distribution or

attempted rollover which would have alerted respondent that the

rollover was untimely.    Decedent did not provide any facts to

respondent that would have shown that she failed to timely roll

over a portion of the 1990 pension distribution.    We find that

respondent reasonably relied on decedent's 1990 return, did not
                               - 13 -


challenge decedent's representations regarding the pension

distribution, and allowed the period of limitations for 1990 to

expire.

(3)   Decedent’s Change of Position or Representation for 1993

      With respect to the third element regarding a change in the

taxpayer's prior representation, petitioner argues that decedent

never made a representation of fact from which an inconsistency

may arise.    Decedent represented that the 1990 pension

distribution was timely rolled over on her 1990 return.    In this

case, petitioner claims that $100,502.21 of the pension

distribution was not timely rolled over.    These positions are

inconsistent, and petitioner's position in this case constitutes

a change in a prior representation.

      Petitioner also argues that there was no detriment to the

Commissioner from the alleged inconsistent reporting of the 1990

pension distribution.    In this regard, petitioner argues that

respondent has failed to show that decedent received a tax

windfall from the prior representation that a timely rollover

occurred.    Petitioner suggests that the portion of the 1990

pension distribution deposited with GNA may have been nontaxable

for some reason other than tax-deferred rollover treatment.     For

example, petitioner contends that the pension distribution may

have consisted of after-tax employee contributions that are not

taxable upon distribution.    Petitioner's contention on this point

is nothing more than supposition.    Petitioner did not offer any
                              - 14 -


evidence that the 1990 pension distribution was a nontaxable

return of after-tax employee contributions.   Decedent's reporting

that the 1990 pension distribution was nontaxable because it was

rolled over is inconsistent with petitioner's current claim that

the distribution may have been nontaxable without being rolled

over.   This is sufficient to establish that decedent understated

her tax liability in 1990.   We hold that respondent has shown

that decedent received a tax benefit from the inconsistent

position with respect to the 1990 distribution.

     We further hold that the duty of consistency doctrine

applies and that the 1993 distribution to petitioner from the GNA

account was includable in her gross income for that year.

     To reflect the foregoing and concessions by the parties,


                                    Decision will be entered under

                               Rule 155.
