Legal News

On Work Product and Tax (This is More Interesting Than it Sounds! Really!)

By Ashby Jones

Yes, we acknowledge our title might have a doth-protest-too-much ring to it, but despite that this post deals with tax, whether documents constitute work product, and a company with a name — Textron — that sounds one notch less phony than Acme Corp., we still maintain that this story is interesting, and that you won’t feel cheated at the end of our blog post.

Deep breath. Here goes.

The First Circuit on Thursday, in a 3-2 en banc decision, ruled that the IRS could access internal tax documents from Textron that included a legal analysis of leasing transactions. Earlier, Textron had provided some documents, but refused to provide others, claiming they were covered by the work-product doctrine, which shields some legal work from discovery. (Textron, by the way, is a very real company — a defense contractor based in Providence, R.I. Acme, is a cartoon company that makes anvils, earthquake pills (pictured), rockets, giant rubber bands and other products primarily used by Wile E. Coyote in his ongoing attempts to catch the RoadRunner.)

In any event, the judges ordered Textron to turn over the documents because the law “does not protect from disclosure documents that are prepared in the ordinary course of business” instead of for litigation or trial.

A Textron spokesman said the company is reviewing the decision and exploring its options. Click here for the WSJ story; here for the Bloomberg story; here for the opinion, here for Paul Caron’s post over at the TaxProf Blog.

According to tax experts, the case was a big one. Bloomberg notes that it’s been closely watched by corporate tax executives and their outside auditors as the IRS has expanded a crackdown on tax shelters. It could have wider impact if courts adopt the same reasoning and let private litigants obtain business records in non-tax cases.

"Textron fought the good fight, but they have now lost," said Robert Duffy, a lawyer at the Kilpatrick Stockton law firm in Atlanta, to Bloomberg. "It's a very good win for the IRS, no doubt about that."

Added Larry Hill of Dewey & LeBoeuf, in an email to the Law Blog: “It’s a landmark decision that will cause tax directors of public companies to toss and turn in their sleep and will encourage the IRS to be more aggressive in seeking tax accrual work papers.”

William Wilkins, the IRS's top lawyer, said in a statement the agency is pleased with the decision. “The court has affirmed our view that, when the IRS seeks tax accrual work papers, the work product doctrine does not provide a basis for the taxpayer to prevent their disclosure," Wilkins said.

Repping Textron: John Tarantino and others at Adler Pollock & Sheehan.

Correction: An earlier version of this post incorrectly named Latham’s David Brodsky as counsel to Textron. Brodsky wrote an amicus brief on Textron’s behalf.

Full post as published by Law Blog - WSJ.com on August 14, 2009 (boomark / email).