FIRST CIRCUIT IN TEXTRON GIVES IRS ACCESS TO TAX ACCRUAL WORKPAPERS

• Published in: Journal of Taxation Vol. 111; no. 4; p. 199
• Main Author: Jones, Philip N
• Format: Trade Publication Article
• Language: English
• Published: New York Thomson Reuters (Tax & Accounting) Inc 01-10-2009
• Subjects: Accruals; Federal court decisions; Litigation; State court decisions; Tax controversies; Working papers; United States > US
• ISSN: 0022-4863

The First Circuit issued its much-anticipated en banc opinion on the subject of IRS access to tax accrual workpapers, in Textron Inc, 104 AFTR2d 2009-5719. Previously, the taxpayer in Textron had successfully employed the work product doctrine to wield the documents in federal district court and in a hearing before a panel of the First Circuit. The en banc court, however, reversed the earlier rulings and handed a victory to the IRS, widening a pre-existing conflict among the circuits. As presently formulated, the rules protect the products of efforts performed in the anticipation of litigation, but the interpretation of that phrase has resulted in a considerable volume of litigation in the federal courts. The district court was asked to determine whether Textron's dual-purpose tax acrrual workpapers were prepared because of the prospect of litigation, or because of financial reporting requirements. For corporate taxpayers that have engaged in listed transations, it appears that there is little that can be done to protect their tax accrual workpapers from IRS scrutiny.