In a decision deserving of Supreme Court review, the en banc decision of the First Circuit Court of Appeal in Textron, 104 AFTR 2d 2009-5719, 08/13/2009 , has vacated the district court's determination that a public corporation's tax accrual workpapers were protected from IRS summons by the work-product doctrine. Instead, the First Circuit held that the work-product privilege was not implicated with regard to the taxpayer's tax accrual workpapers, because it found that the workpapers were not prepared "for" litigation and were required to be produced pursuant to an IRS administrative summons. The First Circuit noted that the IRS's right to compel the production of these types of records was important in detecting and disallowing the benefits sought by taxpayers investing in potentially abusive tax shelters. The taxpayer had indeed invested in nine sale-in, lease-out (SILO) transactions which were "listed transactions." After experiencing recent judicial defeats, the Textron case reflects the determination of the IRS Commissioner to have the judicial system reflect the proper goals and aims involved in administering the tax laws. Effective administration requires the production of non-privileged information used in preparing returns, including underlying tax analysis that supports positions and details the anticipated risk that a deficiency in tax, penalties, and interest may follow. The need to obtain tax accrual workpapers is heightened where the returns reflect tax items attributable to tax-motivated transactions. The First Circuit essentially agrees with the IRS's efforts to obtain tax accrual workpapers during discovery in appropriate cases, such as Textron. It places corporate tax payers on notice that some courts will find that tax accrual workpapers or FIN 48 workpapers are not "work product" per se, as was the position taken by the First Circuit, while other courts may use the Fifth Circuit's standard and determine that workpapers are not primarily prepared in anticipation of litigation.
Textron recently filed a writ for certioari before the Supreme Court which the government needs to respond by on or before March 29, 2010. A number of amicus curiae filings have been submitted on behalf of Textron.