Images In Motion of El Paso, Inc. v IRS
TC Memo 2006-19
Summary of the Case
Taxpayers can successfully obtain attorney fees from the IRS.
In this case, the Internal Revenue Service attempted to reclassify a dance studio’s personal instructors to employee status, which would make the studio liable for the prior three years’ payroll taxes, plus penalties and interest.
This case makes for interesting reading. It first describes in detail a comprehensive analysis of the facts presented by the studio. It then details the legal issues to be considered, and how the studio satisfied each of them. It then describes the IRS auditor’s improper analysis during the audit, and the unreasonableness of the IRS attorney’s position at trial.
The Court’s analysis also contains a detailed review of the complicated requirements of IRS administrative practice, and how the studio substantively met each requirement.
The Court concluded the IRS position was unreasonable, and awarded the studio $16,352 in attorney fees.