Palmer v. United States Internal Revenue Service

We must decide whether the Internal Revenue Service made proper deficiency determinations and assessments for unpaid taxes against non-cooperative taxpayers.

I

Paul and Angela Palmer failed to file tax returns from which their income could be determined for the years 1976 through 1979. Internal Revenue Service (“IRS”) agents attempted to meet with the Palmers to gather income information, but the Palmers did not attend the scheduled meeting.

IRS employees then conducted an investigation seeking income information from the four unreported years, with limited success. Agents contacted the Idaho Department of Employment, several area employers, and the electrician’s union. They discovered $2,627 in wages in 1976, and information suggesting that Paul Palmer worked for wages in 1979. The bookkeeper at a local logging company was interviewed and informed an agent that she was a neighbor of the Palmers and believed that Paul Palmer worked as a self-employed electrician.

Because IRS agents were not able to uncover reliable income information, they decided to reconstruct the Palmers’ income with statistics. The agents found the national “median household income” as reported by the U.S.…