Yesterday, the U.S. Court of Appeals for the Second Circuit reversed the District Court to find that the appellant did not waive attorney-client privilege by providing documents to a consortium of banks sharing a common legal interest in the tax treatment of a refinancing and corporate restructuring resulting from an ill-fated acquisition originally financed by the consortium.  J. Walker Johnson, partner in Steptoe’s Washington office, commented in Bloomberg BNA, that the Second Circuit got it exactly right.  "The district court’s reasoning that no common legal interest existed because the resolution of Schaeffler’s tax issues would affect the consortium’s financial interests was untenable."

The Second Circuit also concluded that the work-product doctrine protects documents analyzing the tax treatment of the refinancing and restructuring prepared in anticipation of litigation with the IRS.  Johnson further commented: “the district court’s rationale would deny work product protection to tax analyses in all transactions, indefensibly punishing taxpayers seeking to comply with the tax law.  The Second Circuit’s strong affirmation of its decision in United States v. Adlman gives reason to believe that when a tax accrual workpapers issue is again litigated, courts in the Second Circuit and elsewhere will rely onAdlman as a basis to disagree with the result in Textron.”