Duty of Consistency Doctrine: Determining How to Resolve Past Errors and Withstand IRS Challenges

The tax treatment chosen in one year can influence a taxpayer's liability in multiple years. Mistakes, timing, and other positions taken on returns can have a ripple effect across multiple years. Without the DOCD, taxpayers manipulating the statute of limitations could vary chosen tax treatments to their advantage.

You will not find this in the Internal Revenue Code; the DOCD principles have been defined by the courts. R. H. Stearns Co. v. United States states the DOCD is "... the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong." (R. H. Stearns Co. v. United States, 291 U.S. 54 (1934)).

A violation of the DOCD includes three elements. First, an item is reported or a representation made in a particular year. Second, the IRS must rely on the representation made. Finally, the taxpayer subsequently changes the original item or representation, after the statute of limitations has tolled, in a way that benefits the taxpayer and harms the IRS. The DOCD allows the IRS to hold the taxpayer to the original position.

Tax practitioners often encounter mistakes made on prior returns from new clients, and their own errors. Understanding how best to rectify these situations is critical for tax professionals.

Listen as our panel of federal income tax experts discusses practical applications of the duty of consistency doctrine, including correcting or adhering to past mistakes.

1. DOCD: introduction
2. Elements of the duty of consistency
3. Relevant precedents
4. Practical applications of the DOCD: examples
5. Correcting past errors
6. Best practices

The panel will review these and other critical issues:

• Adjusting prior errors with capital and passive loss carryovers
• Is an adjustment of a prior year problem in the current year a viable alternative?
• How is this different from Accounting Method Changes on Form 3115?
• Key cases that frame the DOCD

Learning Objectives

After completing this course, you will be able to:

• Identify violations of the DOCD
• Determine when making prior year adjustments in the current year could be the best alternative
• Decide how to handle incorrect passive loss carryforwards
• Ascertain key cases that have impacted the DOCD

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of individual income taxation, including itemized deductions, individual income tax credits, net operating loss limitations including carrybacks and carryforwards.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).