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The Taxpayer's Duty Of Consistency, Steve R. Johnson

Scholarly Publications

A transaction may affect the taxpayer's federal tax liability for both the current period and subsequent periods. No difficulty arises if the taxpayer treats the transaction consistently over the periods. However, significant tax distortions are possible if the taxpayer's characterization of the transaction varies from period to period. A recharacterization may be particularly troublesome if the statute of limitations has expired, and the first period is not open to correction at the time the inconsistent representation is made.

The duty of consistency was developed to address this problem. If the duty applies, the taxpayer is not permitted to shift his …