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Medical has a duty of consistency to continue to report the Coral
transaction in 1990 as if the Coral note were valid.
The Court of Appeals for the Fourth Circuit, to which an
appeal in this case would lie, has recognized the existence of a
duty of consistency. See Interlochen Co. v. Commissioner, 232
F.2d 873, 877-878 (4th Cir. 1956), affg. 24 T.C. 1000 (1955).
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
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. Herrington v.
Commissioner, 854 F.2d 755, 758 (5th Cir. 1988), affg. Glass v.
Commissioner, 87 T.C. 1087 (1986); Unvert v. Commissioner, 72
T.C. 807, 815 (1979) (quoting Beltzer v. United States, 495 F.2d
211, 212 (8th Cir. 1974)), affd. 656 F.2d 483 (9th Cir. 1981).
When the duty of consistency applies, the Commissioner may
proceed as if the representation or report on which she relied
continues to be true, although, in fact, it is not. Herrington
v. Commissioner, supra at 758.
The parties agree that the first and third elements of duty
of consistency are present. The parties disagree as to the
presence of the second element.
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