Portillo I v IRS
932 F2d 1128 (CA5, 1991)
Summary of Case
In a criminal case, we are presumed innocent until proven guilty. But in a tax case, the opposite is true, as courts have long presumed the Internal Revenue Service to be correct. Ramon Portillo changed all of that. Today, the IRS must prove unreported income.
Mr. Portillo, a 70-year-old house painter, spoke broken English and achieved only an eighth-grade education. In 1997, the IRS received a form 1099 claiming that Mr. Portillo was paid $17,000 by a contractor.
However, the contractor did not possess any checks written to Mr. Portillo, nor receipts for payments to Mr. Portillo, nor checks to cash with which to pay Mr. Portillo. At trial, the IRS simply argued that its presumption was correct, and that Mr. Portillo had a burden to overcome that presumption. Mr. Portillo argued that the government had no evidence in its file, and therefore should not be entitled to receive the presumption that it was correct, having abused that presumption.
The United States Tax Court determined that the IRS was presumed correct, and that Mr. Portillo owed the taxes. However, the Fifth Circuit Court of Appeals determined that the government lacked any evidence that Mr. Portillo received that money, and therefore was no longer entitled to rely on its presumption of correctness.
The Court also determined that in the future the IRS would not receive the benefit of presumption of correctness in unreported income cases unless it first produced evidence that the taxpayer had actually received money. This was an astonishing determination by the Circuit Court of Appeals.
The case was reported in media across the United States, making the front page of the Wall Street Journal, and being covered in Newsweek and Reader’s Digest. It was picked up by the Associated Press wire service, and noted in all major national law journals. Following coverage of the case in the national tax journals, Congress held hearings before the Senate Finance Committee in Washington, D.C., leading to the Taxpayer Bill of Rights.
Mr. Portillo testified before the Senate Finance Committee that he didn’t receive the money from the contractor, that the IRS had no evidence otherwise. Therefore, Mr. Portillo contended that he didn’t owe $8,300 in tax. Additionally, Mr. Portillo was impoverished and couldn’t afford to pay.
Congress determined the Portillo case should be codified and it was – in the new statute 26 USC 6201(d) – making Mr. Portillo’s case the law of the land. The IRS has since privately advised that Mr. Portillo’s case saved taxpayers as much as $600 million in that year alone. The Service further advised it had to fundamentally change the way it conducts an income audit because of this case, and the statute that arose therefrom.
Today, taxpayers across the United States, especially the poor, benefit from the courage and stamina of this elderly, infirmed, impoverished and uneducated man who said “no” to the IRS – and won.