- 10 -- 10 -
a factor to be considered in assessing respondent's
justification. Hanson v. Commissioner, supra at 1156.
Petitioners contend that in the notice of deficiency
respondent "merely alleged" unreported income based on a Form
1099-R issued by a third party. Essentially, petitioners argue
that there was an inadequate factual basis for the determination
and that, consequently, respondent's position was not
substantially justified. This argument is premised upon Portillo
v. Commissioner, 932 F.2d 1128 (5th Cir. 1991) (Portillo I),
affg. in part, revg. in part and remanding T.C. Memo. 1990-68,
and its companion case Portillo v. Commissioner, 988 F.2d 27 (5th
Cir. 1993) (Portillo II), revg. and remanding T.C. Memo. 1992-99.
For the reasons that follow, petitioners' reliance on these cases
is misplaced.
In Portillo I, there was a $24,505 discrepancy between the
amount reported on the taxpayer's return ($10,800) and the amount
reported by a third party payor (Navarro) on a Form 1099
($35,305). During the audit, the taxpayer conceded his failure
to report $3,125 in income received from Navarro, but denied
receiving more than $13,925 from him. Respondent's agent then
contacted Navarro, who was able to produce copies of checks paid
to the taxpayer in the amount of $13,925, but did not have copies
of checks for the remaining $21,380 reported on the Form 1099.
Thereafter, respondent issued a notice of deficiency. The Court
of Appeals for the Fifth Circuit found that respondent had
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