Portillo II v. IRS

988 F2d 27 (1993, CA5)

Summary of Case

In order to collect attorney fees from the IRS, the taxpayer had to prove the IRS was unreasonable. Mr. Portillo changed that. Today the IRS must prove it was reasonable.

1. Introduction

It is possible for a prevailing party to receive an award of attorney fees from the Internal Revenue Service. However, these cases had previously been few and far between. One of the greatest hurdles in obtaining attorney fees was to prove that the government’s position was unreasonable, not substantially justified. Few taxpayers could overcome this burden.

2. Law

Ramon Portillo argued that he should receive an attorney fees because the government’s position was not substantially justified. The Fifth Circuit agreed that simply relying upon the presumption of correctness was not a reasonable position to take a federal court proceeding and awarded him attorney fees.

3. Congress

Mr. Portillo testified before the Senate Finance Committee which was in the process of enacting the Taxpayer Bill of Rights. Congress determined that it was an excessive burden for the Taxpayer to have to prove that the IRS was unreasonable. Instead, the IRS should have the burden to prove that its position was reasonable. Congress then enacted new Section 26 USC 7430(c)(4)(B) codifying this position.

That’s right folks, the presumption of correctness no longer attaches to the IRS in attorney fees cases either. This removed one of the greatest single obstacles for innocent taxpayers to receive an award of attorney fees from Internal Revenue Service. Many innocent taxpayers have benefited from this new federal tax statute.

See also: Images In Motion of El Paso Inc, (2006) TC Memo 2006-19