Portillo v. Commissioner

Ramon Portillo (plaintiff) worked as a painting subcontractor. Portillo accepted jobs from general contractors, who paid Portillo weekly by check for labor performed by Portillo and Portillo’s crew. Portillo did not have a bank account, so he cashed the contractors’ checks and paid his own crew in cash. Portillo kept records on his accounting ledger of the amounts contractors paid him. Each contractor issued Portillo a Form 1099 at the end of the year providing the amount paid to Portillo for his subcontracting services. Each year, Portillo submitted his ledger and his 1099 forms to a tax preparer. One of the contractors Portillo worked for, Mr. Navarro, failed to issue Portillo a Form 1099 in time for Portillo’s preparer to use it to prepare Portillo’s 1984 tax return. For that year, Portillo reported receipts from Navarro equal to the amount Portillo had recorded in his ledger. In 1985, Navarro filed the Form 1099 with the Internal Revenue Service (IRS) (defendant), reporting payments to Portillo approximately $24,000 higher than what Portillo had listed on his 1984 tax return. In 1987, the IRS issued Portillo a notice of deficiency based on purportedly unreported income from Navarro. The IRS based its determination solely on the discrepancy between the receipts Portillo reported on his 1984 return and the amount Navarro reported to have paid on his Form 1099. The IRS agent who determined the deficiency was not able to obtain records from Navarro corroborating the accuracy of the higher figure and made no other attempts to prove the correctness of the deficiency. Portillo filed a petition in the United States Tax Court challenging the deficiency. The Tax Court ruled in favor of the IRS, holding that the IRS’s determination was presumed correct and that Portillo failed to prove that the determination was incorrect. Portillo appealed.