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As is the case here, the taxpayers in Parker failed to file
income tax returns for the years in issue, yet relied upon the
Portillo cases for the proposition that the normal presumption of
correctness should not apply to the notices of deficiency because
the Commissioner's determinations of unreported income were based
upon Forms 1099 and W-2. In rejecting this argument and
affirming this Court's dismissal of the taxpayers' case for
failure to state a claim upon which relief can be granted, the
Court of Appeals distinguished the Portillo cases as follows:
In Portillo, the IRS issued a notice of deficiency when
it discovered that the taxpayer had reported
substantially less income from a particular payor than
that payor had reported in its Form 1099. We found
that the Commissioner "arbitrarily decided to attribute
veracity to [the third-party payor] and assume that
[the taxpayer's] Form 1040 was false." [Portillo v.
Commissioner, 932 F.2d at 1134.] In Portillo, the
Commissioner's determination was arbitrary because the
Commissioner offered no factual basis for accepting one
sworn statement, the Form 1099, while rejecting another
sworn statement, the taxpayer's Form 1040.
Portillo did not hold that the IRS must conduct an
independent investigation in all tax deficiency cases.
In this case, the Commissioner has not arbitrarily
found the third-party forms credible: the Parkers
never filed a Form 1040 or any other document in which
they swore that they did not receive the payments in
question. The Commissioner has no duty to investigate
a third-party payment report that is not disputed by
the taxpayer.
Parker v. Commissioner, 117 F.3d at 786-787. We note that the
Court of Appeals concluded its opinion by imposing a penalty of
$2,000 against the taxpayers for bringing a frivolous appeal.
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