CCA 1124022: When a payment review is not a second examination

Plain-English summary

Chief Counsel Advice addressed whether examining payments related to a taxpayer's return would be a prohibited second examination under IRC § 7605(b). The advice concluded that preparing a substitute return from records already held by the IRS is not an examination, and that a review of voluntarily submitted records may also fall below that threshold when it is relatively simple. It therefore concluded that examining the payments would be the first examination for the relevant tax year.

Ruling snapshot

• Question: Would examining payments after a substitute-for-return assessment constitute a prohibited second examination?
• Outcome: Advice given.
• Key authorities: IRC §§ 7602(a), 7605(b); Rev. Proc. 2005-32, §§ 4.03(1)(b), 4.03(1)(c).

Full text (IRS public release)

ID: CCA_2011051708500243 Number: 201124022
Release Date: 6/17/2011
Office: --------------
UILC: 7605.01-00

From: --------------
Sent: Tuesday, May 17, 2011 8:50:03 AM
To: -----------------
Cc: ----------------------
Subject: FW: Re-Examination Question

Conducting an examination of the taxpayer regarding the payments totaling over
$---------------does not constitute a prohibited second examination as to year ------- under
section 7605(b), because the actions taken with respect to the SFR assessment do not
constitute an examination. As such, there would be no prohibition under section
7605(b) because the examination of the payments would be the first examination of the
taxpayer for -------.
Section 7602(a) empowers the Service to examine "any books, papers, records, or
other data" which may be relevant for four specific purposes, one of them being the
making of a return where none has been made. Section 7605(b) prohibits "unnecessary
examination[s]" and more than one inspection of a taxpayer's books of account for the
same taxable period unless necessary and pursuant to certain procedures. Although
the Code does not define "examination", nor are we aware of any meaningful official
agency or judicial definition, we believe it necessarily involves the Service examining a
taxpayer's "books, papers, records, or other data." The Service's determination of a
liability made without examining books and records (or the like) is not an examination.
Revenue Procedure 2005-32, 2005 WL 1189673, provides agency guidance on what
does not constitute an examination. Preparing a missing return from records or
information items that are already in the Service's possession is not an examination,
inspection or reopening. Rev. Proc. 2005-32, sec. 4.03(1)(b). Because the ASFR
program does not and would not involve an examination of a taxpayer's books and
records other than potentially a very limited review of supporting records that a taxpayer
voluntarily submits in response to a discrepancy or similar inquiry, operation of the
program is not an examination for purposes of section 7602(a) and 7605(b). Even a
review of voluntarily submitted records in these circumstances--assuming it's a relatively
simple review--does not rise to the level of an examination. See Rev. Proc. 2005-32,
sec. 4.03(1)(c).
Please do not hesitate to contact me with any questions or concerns.

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