Images In Motion of El Paso, Inc.

TC Memo 2006-19


Taxpayers can successfully obtain attorney fees from the IRS

In this case the IRS attempted to reclassify a dance studio’s personal instructors into employee status and thereby make the studio liable for the prior three years of payroll taxes plus penalties and interest.

The 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 byzantine 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.