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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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