Lucian T. Baldwin, III - Page 46

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          business expenses, whether BAC’s deductions were substantiated,             
          and whether the claimed losses were passive losses under section            
          469.  If we were to accept petitioner’s concession and refuse to            
          apply the duty of consistency, respondent would be deprived of              
          the opportunity to evaluate BAC’s correct tax status or to                  
          determine the proper tax effect of BAC’s activities for the years           
          at issue.  This is so, at least in part, because, if BAC were a C           
          corporation as petitioner contends, the limitations period for              
          assessing income tax deficiencies at the corporate level would              
          have expired.  The record reveals that respondent relied on                 
          petitioner’s representations regarding BAC’s S status to his                
          detriment, and we so find.                                                  
               Finally, we reject petitioner’s argument that, because he              
          was not aware of any problem with BAC’s S corporation election              
          prior to 1998, he did not have personal knowledge of BAC’s failed           
          S corporation election until after the audit was completed and              
          the period of limitations had run for the years at issue.                   
          Although petitioner’s argument implies to the contrary, personal            
          knowledge is not an element of the duty of consistency.  Kielmar            
          v. Commissioner, 884 F.2d 959 (7th Cir. 1989).  The duty of                 
          consistency may apply to a taxpayer who innocently misrepresents            
          a fact in a time-barred year and to one who misleads                        
          intentionally.  Beltzer v. United States, 495 F.2d 211, 212 (8th            
          Cir. 1974); Unvert v. Commissioner, 72 T.C. 807, 816 (1979),                
          affd. 656 F.2d 483 (9th Cir. 1981).                                         

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