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Taxation & Estate Planning

ARE TAX-ACCRUAL WORKPAPERS GENERATED BY CORPORATION AND ITS INDEPENDENT AUDITOR SO THAT CORPORATION COULD COMPLY WITH SEC FILING REQUIREMENTS SUBJECT TO AN IRS SUMMONS??? ---STAY TUNED!

By Fox Rothschild (all)

On January 25, 2008 the Justice Department submitted a brief for the First Circuit, arguing that a district court erred in U.S. v. Textron Inc. and Subsidiaries, 507 F. Supp. 2d 138 (D.R.I. 2007) by refusing to enforce an IRS summons and in holding that tax accrual workpapers prepared by a public corporation for a regular financial audit required by federal securities laws are protected by the work product doctrine.  The District Court in Textron was able to conclude that the IRS was not entitled to the tax-accrual workpapers because the court ruled that those workpapers had “little to do” with the determination of Textron’s tax liability and that disclosure “would put Textron at an unfair disadvantage” in disputes regarding its tax liability. 

In its brief the United States argues that the District Court’s determination that Textron’s tax accrual workpapers are protected work product (i) misapplies the Supreme Court’s Arthur Young, 465 U.S. 805 (1984) (holding that accountants’ tax-accrual workpapers were “highly relevant” to an IRS audit and were not protected by an accountant’s work-paper doctrine) decision, (ii) conflicts with the First Circuit’s work-product test set out in Maine, 298 F.3d 60 (1^st Cir. 2002)(“documents should be deemed prepared for litigation and within the scope of the [work product rule] if, ‘in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation’”), and (iii) unnecessarily creates a conflict with the Fifth Circuit’s El Paso, 682 F.2d 530 (5^th Cir. 1982), cert. denied, 466 U.S. 944 (1984) (no work-product protection for documents “assembled in the ordinary course of business, or pursuant to public requirements unrelated to litigation”) decision which has held that a company’s tax-accrual workpapers are not protected work product. 

Full post as published by Tax Litigation Blog on February 07, 2008 (boomark / email).