                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

CONRAD JANIS; MARIA G. JANIS,        
           Petitioners-Appellants,        No. 04-74624
               v.
                                          Tax Ct. No.
                                            01-14318
COMMISSIONER OF INTERNAL
REVENUE,                                    OPINION
             Respondent-Appellee.
                                     
              Appeal from a Decision of the
                United States Tax Court

                  Argued and Submitted
            June 6, 2006—Pasadena, California

                  Filed August 21, 2006

     Before: Stephen Reinhardt, Stephen S. Trott, and
         M. Margaret McKeown, Circuit Judges.

               Opinion by Judge McKeown




                          10011
                        JANIS v. CIR                  10013


                        COUNSEL

Steven R. Mather and Elliott H. Kajan, Kajan Mather and
Barish, Beverly Hills, California, for the petitioners.

Eileen J. O’Connor, Assistant Attorney General, Jonathan S.
Cohen and Francesca U. Tamami, Attorneys, Department of
Justice, Tax Division, Washington, D.C., for the respondent.
10014                     JANIS v. CIR
                          OPINION

McKEOWN, Circuit Judge:

   Conrad Janis and his wife Maria G. Janis (“Petitioners”)
appeal the Tax Court’s holding that they are liable for defi-
ciencies in their joint income tax returns from 1995 through
1997. These deficiencies resulted from Conrad taking incon-
sistent positions as to the value of an expensive art collection
included in his father’s estate. On the premise that flooding
the market with a large collection of works from significant
artists, ranging from Piet Mondrian to Jean Arp and Grandma
Moses, would depress the value of the works, Conrad and his
brother Carroll Janis, as co-executors and the sole beneficia-
ries of the estate, calculated a discounted value for the collec-
tion. Conrad and Carroll ultimately agreed with the Internal
Revenue Service (“IRS”) on a discounted valuation of the col-
lection. Some years later, in valuing the gallery’s inventory,
Petitioners claimed a higher, undiscounted market value as
the tax basis for the collection in their joint tax returns. The
Tax Court held that Petitioners were bound by the duty of
consistency and could not report on their individual tax
returns a value different than that stipulated to for the estate
tax return. We agree and affirm.

                         BACKGROUND

   Sidney Janis owned and operated, as a sole proprietorship,
the Sidney Janis Art Gallery in New York. The gallery owned
almost 500 works of art, many of them by well-known artists.
In April of 1988, Sidney transferred the gallery, including the
art collection, into a trust, with himself and his children, Con-
rad and Carroll, as trustees. Upon his death, the remaining
trust assets were to be distributed to Conrad and Carroll in
equal shares. Sidney died in November of 1989. Conrad and
Carroll were named co-executors and the sole beneficiaries of
his estate.
                         JANIS v. CIR                     10015
   After Sidney’s death, the estate hired Sotheby’s to value the
collection. Sotheby’s valued the works on an item-by-item
basis at fair market value. The appraiser did not account for
any diminution in value that might occur in the event the
entire holdings were placed in the market at one time. How-
ever, the estate calculated a discount—known as a blockage
discount—that accounted for the number of pieces in the col-
lection, the nature of the works, and other factors that would
affect the actual realized price as a consequence of putting
such a large number of works on the market. Each year
between 1990 and 1992, Conrad and Carroll filed a fiduciary
income tax return for the trust that reported the collection at
a blockage discounted value of $12,403,207. With this valua-
tion, the gallery reported a net operating loss each year,
thereby minimizing the amount of taxes owed.

   After the 1991 tax return was filed, the IRS examined the
claimed valuation and agreed that a blockage discount was
appropriate. The IRS disagreed, however, with the actual
value of the collection. The IRS determined that the undis-
counted value of the collection was $36,636,630 and that the
appropriate blockage discounted value was $14,500,000,
approximately two million dollars higher than the estate’s
estimate.

   In January 1994, Conrad and Carroll consented to the IRS’s
adjustments and to its discounted valuation of the estate’s art-
work. Memorializing their agreement, Conrad and Carroll
signed Form 890, Waiver of Restrictions on Assessment and
Collection of Deficiency and Acceptance of Overassessment.
The IRS’s examination of the artwork valuation was then con-
cluded. The limitations period for assessment against the 1991
estate tax return expired before these proceedings.

   In February 1994, despite their earlier agreement with the
IRS, Conrad and Carroll filed amended fiduciary income tax
returns for 1990-1992, claiming an undiscounted value of
$36,636,630 for the collection. This valuation, in turn, created
10016                     JANIS v. CIR
an even larger net operating loss for the gallery, increasing the
tax benefits for Conrad, Carroll, and the trust. In the years
1993 through 1995, Conrad and Carroll similarly filed fidu-
ciary income tax returns for the trust, reporting the value of
the collection at its undiscounted value.

   The trust was terminated in November 1995, and its assets,
including the gallery and the collection, were distributed to
Conrad and Carroll in equal shares of ownership. Conrad and
Carroll formed a partnership to hold the assets of the gallery,
including its collection. The net operating losses reported for
the trust between 1990 and 1995 were rolled over into the
partnership, a maneuver that allowed Petitioners (as well as
Carroll and his wife) to reduce their joint taxable income for
1995, 1996, and 1997. In their tax returns, Petitioners contin-
ued to report the collection at the full, undiscounted value of
$36,636,630. During this entire period (1990-1997), the indi-
vidual works of art were not divided between Conrad and
Carroll, but instead were kept together in the gallery, with
each owning an equal share of the total collection.

   Eventually the IRS reviewed Petitioners’ individual tax
returns (filed jointly) for 1995-1997, as well as the trust tax
returns for 1990-1995. The IRS concluded that Petitioners
should have used the collection’s blockage discounted value
of $14,500,000, which had been calculated by the IRS and
agreed to by Conrad and Carroll for estate tax purposes.
Under this valuation, after adjustments were made, the gal-
lery’s (and the trust’s) actual net losses between 1990 and
1995 were substantially reduced and the partnership realized
a profit for 1996 and 1997. The result was that with the lower
valuation of the collection, Petitioners owed more taxes
because they were not able to claim the same net operating
losses for the gallery and partnership.

  The IRS filed a notice of deficiency for the 1995-1997 indi-
vidual tax returns. Petitioners contested the notice in Tax
                              JANIS v. CIR                         10017
Court, which upheld the deficiencies after a one-day trial.
Janis v. Comm’r, 87 T.C.M. (CCH) 1322 (2004).1

                               ANALYSIS

I.       FAIR MARKET VALUE OF THE ART COLLECTION

   To determine whether Conrad and Carroll reported the cor-
rect value of the gallery for estate tax purposes, the IRS Art
Advisory Panel reviewed a sample of the works. The Panel
accepted Sotheby’s item-by-item valuation to determine the
undiscounted value of the collection. Although the Panel did
not agree with the specific discounts urged by Conrad and
Carroll, it did agree that a blockage discount was appropriate.

     As explained by the Panel,

             In general, a blockage discount is applied to prop-
         erty in an estate in an attempt to reflect the market’s
         response to a large number of items. Traditionally
         . . . a blockage discount is applicable in response to
         a large number of works by one artist, usually in an
         artist’s estate. The Estate of Sidney Janis is not an
         artist’s estate, and does not involve a large number
         of works by one particular artist, but rather works by
         different artists. However, since it is a valuation
         problem involving a gallery inventory, some of the
         general principles are applicable.

            A number of factors have been considered in
         determining whether a blockage discount is appro-
         priate and to what extent it should be applied to the
         subject properties. Consideration was given to the
         prominence of the artists; the types of works in the
     1
   The Tax Court also upheld deficiencies against Carroll and his wife for
their 1995-1997 joint tax returns. These deficiencies are not part of this
appeal.
10018                         JANIS v. CIR
      estate; the distribution of the items (for example, the
      number and types, and their quality and saleability);
      the number of similar items available in the market-
      place; the market’s response to such works around
      the valuation date; the number of sales and the prices
      at which sales were made during the period immedi-
      ately preceding and following death; the annual sales
      of the gallery; length of time necessary to dispose of
      the items; the works that are saleable within a rela-
      tively short period of time; the works that can only
      be marketed over a long period; the demonstrated
      earning capacity of the business; the tangible and
      intangible assets, including goodwill; and, the repu-
      tation of the gallery and the provenance.

Janis, 87 T.C.M. at 1324.2

   [1] Ultimately, Conrad and Carroll stipulated to the Panel’s
recommendation of the value of the collection for estate tax
purposes, $14,500,000. This valuation flowed through to Con-
rad and Carroll as the heirs of the estate. In valuing inherited
property for income tax return purposes, 26 U.S.C.
§ 1014(a)(1) provides that “the basis of property in the hands
of a person acquiring the property from a decedent . . . shall
. . . be . . . the fair market value of the property at the date
of the decedent’s death.” Under the tax regulations, 26 C.F.R.
§ 1.1014-3(a), the estate tax valuation of the inherited prop-
erty upon the decedent’s death is prima facie evidence of the
fair market value of the property. Janis, 87 T.C.M. at 1328.
Consistent with these circumstances, the Tax Court deter-
mined that the agreed-upon estate tax value applied to the col-
lection under § 1014 and § 1.1014-3(a). Id.
  2
   The Tax Court has a long history of applying blockage discounts in
valuing art collections. See, e.g., Estate of O’Keeffe v. Comm’r, 63 T.C.M.
(CCH) 2699, (1992); Calder v. Comm’r, 85 T.C. 713 (1985); Estate of
Smith v. Comm’r, 57 T.C. 650, (1972), aff’d, 510 F.2d 479 (2d Cir. 1975).
                          JANIS v. CIR                     10019
   Petitioners argue that the Tax Court’s valuation of the col-
lection was a conclusion of law because the facts were stipu-
lated. Under this argument, Petitioners suggest that we do not
owe deference to the valuation determination. Petitioners are
incorrect.

   The Tax Court undertook a detailed analysis whether the
basis of each work of art in the collection is the work’s undis-
counted fair market value, considered whether the blockage
discount was appropriate, and made a determination that each
work’s value “is equal to the proportionately discounted value
as determined for estate tax purposes.” Janis, 87 T.C.M. at
1327-28. This finding of fact was contingent on an analysis
of the factual circumstances of the case, and cannot be charac-
terized as a conclusion of law. See King v. Comm’r, 857 F.2d
676, 678-79 (9th Cir. 1988) (holding that a determination was
factual if it “requires an examination of the totality of the cir-
cumstances and a balancing of many relevant factual ele-
ments”). The Tax Court did not clearly err in its determination
of value. “It is the rule in this Circuit that the Tax Court’s
determination of the value of property is a finding of fact,
which we will reverse only for clear error.” Sammons v.
Comm’r, 838 F.2d 330, 333 (9th Cir. 1988).

II.   THE DUTY OF CONSISTENCY

   Having established the valuation, the Tax Court then
invoked the duty of consistency and held that Petitioners “are
bound to use the collection’s discounted value as their basis
for purposes of calculating the gallery’s [cost of goods sold]
for 1990 through 1997.” Janis, 87 T.C.M. at 1329. This deter-
mination led to a finding of deficiencies for 1995, 1996, and
1997.

  [2] As an initial matter, Petitioners argue that the duty of
consistency should not be invoked here because it is a suspect
doctrine. It is already well established in this circuit that the
10020                         JANIS v. CIR
duty of consistency serves to prevent inequitable shifting of
positions by taxpayers:

      When all is said and done, we are of the opinion that
      the duty of consistency not only reflects basic fair-
      ness, but also shows a proper regard for the adminis-
      tration of justice and the dignity of the law. The law
      should not be such a idiot that it cannot prevent a
      taxpayer from changing the historical facts from year
      to year in order to escape a fair share of the burdens
      of maintaining our government. Our tax system
      depends upon self assessment and honesty, rather
      than upon hiding of the pea or forgetful tergiversa-
      tion.

Estate of Ashman v. Comm’r, 231 F.3d 541, 544 (9th Cir.
2000) (footnote omitted).

  [3] Ashman laid out the following elements for application
of the duty of consistency:

      (1) A representation or report by the taxpayer; (2)
      on which the Commission[er] has relied; and (3) an
      attempt by the taxpayer after the statute of limita-
      tions has run to change the previous representation
      or to recharacterize the situation in such a way as to
      harm the Commissioner. If this test is met, the Com-
      missioner may act as if the previous representation,
      on which he relied, continued to be true, even if it is
      not. The taxpayer is estopped to assert the contrary.

Id. at 545.3 We address each element in turn.
  3
   Petitioners also argue that the duty of consistency was not properly
before the Tax Court because it is an affirmative defense that was not
included in the government’s pleadings. Petitioners are correct that the
duty of consistency is an affirmative defense that should be plead, see
Ashman, 231 F.3d at 542 & n.2, but that rule does not necessarily preclude
                              JANIS v. CIR                           10021
  A.    REPRESENTATION BY THE TAXPAYER

   [4] The Tax Court held that the first element, representation
by the taxpayer, was satisfied by Conrad and Carroll’s agree-
ment 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 consti-
tutes 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 eco-
nomic 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 affir-
mative 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 eco-
nomic 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 eco-
nomic 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 co-
executors 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, 211-
13 (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 indi-
vidual tax returns, the taxpayers claimed the stock was under-
valued 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 under-
valued representation. Id. The court held that the duty of con-
sistency 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 collec-
tion, 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 Peti-
tioners’ taxable income. Petitioners seek to blunt this incon-
sistency 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).

  B.    RELIANCE BY THE IRS COMMISSIONER AND CHANGE IN
        REPRESENTATION BY THE TAXPAYER AFTER THE STATUTE
        OF LIMITATIONS HAS RUN


   [6] The second and third elements of the duty of consis-
tency are also present here—reliance by the Commissioner
and, after the limitations period, a change in position by the
taxpayer that is harmful to the Commissioner. The IRS relied
on Form 890, which contained Conrad’s agreement with the
discounted valuation of the collection, and thereafter allowed
the statute of limitations to run on further assessment of the
1991 estate tax return.4 Conrad changed his position only after
   4
     Petitioners argue that the Commissioner could not reasonably rely on
Form 890 because under 26 U.S.C. § 7121, Petitioners may be able to seek
a refund for tax returns where the limitations period has run on further
assessment, citing Whitney v. United States, 826 F.2d 896 (9th Cir. 1987).
Although it is true that in certain circumstances taxpayers may apply for
a refund for time-barred returns, neither Whitney nor § 7121 address the
duty of consistency. Equity would be remiss if this statutory benefit to the
taxpayer were twisted to avoid the duty of consistency.
10024                   JANIS v. CIR
the limitations period ran. The Commissioner was surely prej-
udiced by this change in position because the Commissioner
can no longer collect the tax deficiency occasioned by Peti-
tioners’ turnabout. Such tax gamesmanship is exactly what
the duty of consistency is designed to prevent.

  AFFIRMED.
