Wendy C. Gerzog (Baltimore) has published Duty of Consistency and Marital Deduction: Horse and Carriage, 108 Tax Notes 1463 (Sept. 19, 2005), also available on the Tax Analysts web site as Doc 2005-18444, 2005 TNT 181-43. Here is the Introduction:
As the Tax Court in Letts explained, the "duty of consistency" is founded on the equitable principles of estoppel as enunciated in R.H. Stearns Co., a 1934 Supreme Court case. "He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned." In other words, it is "the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong." "The doctrine thus prevents a taxpayer from claiming that he or she should have paid more tax before and so avoiding the present tax." In applying that rule, courts have "prevented taxpayers from permanently excluding income that is taxable in some year . . . or from deducting the same expense in 2 or more taxable years."
The duty of consistency requires that "(a) The taxpayer made a representation of fact or reported an item for tax purposes in one tax year; (b) the Commissioner acquiesced in or relied on that fact for that year; and (c) the taxpayer desires to change the representation previously made in a later tax year after the earlier year has been closed by the statute of limitations."
The marital deduction is Congress’s intentional two-act drama: the first spouse dies and his estate, claiming the marital deduction, pays no tax; then the surviving spouse dies and, to the extent the property is not consumed or earlier transferred subject to gift tax, she includes that property in her gross estate. Indeed, it is at the surviving spouse’s death that the "marital unit" completes the property transfer. Congress considered the marital deduction, since its first enactment in 1948, as a deferral statute that allowed the couple’s property to be taxed later, at the surviving spouse’s death or earlier gift, when it is transferred outside of the marital unit — although not necessarily within the time restrictions of the statute of limitations for the first spouse’s tax return when the deduction is claimed.
The purpose of the statute of limitations is to provide closure regardless of the correctness of the taxpayer’s original position. While that objective generally makes sense, it is unreasonable for the marital deduction. The majority of surviving spouses are women and they outlive their husbands by at least 5 or 10 years, much longer than the applicable three-year statute of limitations. So, for the marital deduction, the statute of limitations should give way to a generally applied rule of consistency.
Of course, it would be simpler if Congress enacted a statute that would specifically require any property for which a marital deduction was claimed in the first spouse’s estate to be later subject to transfer taxation at the surviving spouse’s death or earlier transfer. However, the duty of consistency is an equitable remedy that courts should liberally apply in the marital deduction context since Congress has as yet failed to act.
