No, says Judge Buch, IRS didn’t violate Section 7605 when they asked to reopen the audit of foreign withholding tax in the context of an income tax audit, in Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner, et al., Docket No. 8393-12, filed 8/16/16.

This case has provided much material for the discovery junkies. I’ve blogged a few orders, but I’m sure the “win your case at discovery” dudes will find a lot more.

I only wish Judge Buch would designate these orders. It’s ridiculous that I should have to be digging for this stuff at 8:30 p.m. on an August evening in a rainstorm. Oh well, that’s the price of leading the internet league, Tax Court division.

“Section 7605(b) provides that a taxpayer must not be ‘subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.’ The purpose of section 7605(b) is to require revenue ‘agents to clear any repetitive examination with a superior’ to ensure that the agents ‘exercise prudent judgment in wielding the extensive powers granted to them by the [Code].’ United States v. Powell, 379 U.S. 48, 56 (1964).” Order, at p. 4.

IRS had closed the withholding audit and were working on the income tax audit when they dropped two IDRs on Dynamo, who told IRS to chase themselves.

“We have explained that the Commissioner does not conduct a second examination when he does not obtain any new information. Indeed, we have held that section 7605(b) ‘has no relationship to a redetermination of a taxpayer’s tax liability from the information procured by an agent of respondent on his initial inspection of a taxpayer’s books.’” Order, at pp. 12-13 (Citations omitted, but read them; essentially Section 7605(b) is meaningless).

So there was no second (or “secret”) examination, because Dynamo refused the IDRs. And IRS had whatever they needed anyway (or so they say). And IRS can make requests do double, or even triple, duty. So the IDRs can serve both withholding and income tax examinations.

Dynamo complained that the two RAs, the withholder and the income taxer, were consulting, but that’s not illegal.

The point apparently is that when Dynamo told IRS to take a hike, IRS got no new information, so there was no new examination. So exactly what purpose does Section 7605(b) serve?

Dynamo claims IRS didn’t follow Revenue Procedure 2005-32, sec. 5.01, 2005-1 C.B. 1206 and that the Territory Manager (who signed off on the IDRs) was biased. That cuts zero ice with Judge Buch. “Because we find that the Commissioner did not conduct a second examination, we do not need to reach these arguments. However, we note the well established rule that Revenue Procedures are directory and not mandatary [sic].” Order, at p. 7, footnote 4 (and I think you meant “mandatory,” Judge, not “mandatary”).

Dynamo wants the whole deficiency dropped because of the alleged IRS blooper, and there’s Seventh Circuit learning that says OK, but Dynamo is Golsenized elsewhere and Tax Court doesn’t like that Seventh Circuit case anyhow.

Summary J to IRS tossing Dynamo’s motions to produce documents and take testimony.

Maybe my old memory is slipping, but didn’t somebody in Philly on a hot July day comment that “he hath erected a multitude of new offices, and hath sent hither swarms of officers, to harass our people and eat out their substance”?