In Uncategorized on 07/03/2014 at 02:02

Some purveyors of continuing legal education purport to deliver the magic formula for defeating one’s adversary without giving battle (that is, going to trial). “Win your case at discovery”, they proclaim.

That’s not a bad idea. The legendary Chinese general Sun Tzu remarked that “to win a hundred battles is not the acme of skill; to win without fighting is the acme of skill.” It’s hard to disagree; but pulling off that interesting trick is even harder.

I am not immune. See my blogpost “Win Your Case”, 2/11/14.

But IRS seems to have taken my advice a trifle too exuberantly.

Even after my blogpost “Related vs Responsive”, 6/26/14, wherein Judge Gale gave IRS a timeout for an overbroad discovery request, the 1111 Constitution Avenue gang are at it again, this time in, Inc. & Subsidiaries, Docket No. 31197-12, filed 7/2/14.

It’s a transfer pricing scrimmage with a Luxembourg affiliate, which immediately sets off bells. But IRS seeks documents from 32 (count ‘em, 32) cost centers dealing with “Technology and Content” (T&C) and intangible development costs (IDC); the Amazonians claim the demand is burdensome and overbroad, but offer to work with IRS to show them how reasonable the Amazonians and the Luxembourgers were in setting up their deal.

Judge Lauber agrees: “It is clear that respondent is entitled to discovery as to the facts underlying petitioner’s cost allocations, as to whether costs within the T&C category are ‘mixed’ as petitioner contends, and as to the appropriateness of the formula petitioner has used to allocate T&C category costs to IDC. However, the Court agrees with petitioner that the documents and information sought by respondent in his Requests… would be burdensome and expensive to produce, and that these requests are not calculated to lead in an efficient manner to the discovery of relevant evidence. Petitioner has offered to work with respondent to identify information pertaining to the reasonableness of its allocation method, and we will hold petitioner to that promise. We will therefore deny respondent’s motion as currently drafted, without prejudice to respondent’s ability to file a more narrowly-tailored motion to compel production of documents if informal discovery efforts prove unsatisfactory.” Order, at p. 3.

Win at discovery is a good gameplan, but if overused and overburdensome, it will backfire.

IRS, please copy.


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