- 11 -- 11 - "arbitrarily decided to attribute veracity" to the "naked assertion" of the third party payor. Without evidence to support the notice of deficiency, the determination was held to be arbitrary and erroneous, resulting in a decision in favor of the taxpayer. Portillo v. Commissioner, 932 F.2d at 1133-1134. In Portillo II, the taxpayer appealed this Court's denial of administrative and litigation costs incurred from Portillo I. The Court of Appeals for the Fifth Circuit relied upon the conclusion in Portillo I that "the deficiency notice 'lacked any ligaments of fact' and was 'clearly erroneous' as a matter of law", and held this to be a clear indication that respondent's reliance upon such an unsupported notice of deficiency was not substantially justified. Portillo v. Commissioner, 988 F.2d at 29. In Portillo I and Portillo II respondent was aware before sending the notice of deficiency that the payor could not fully substantiate the amounts reported on the Form 1099. We, however, do not read Portillo II as holding that the Government may never be substantially justified in relying upon a third party payment report (Form 1099) in issuing a notice of deficiency that determines unreported income. Portillo II does not address the question presented herein; viz, whether respondent may be substantially justified in relying upon a third party payment report when the taxpayer fails to respond to respondent's inquiries.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011