Paul L. Caron

Monday, April 14, 2008

NLJ: Corporate Counsel Fight IRS in Key Work Product Protection Case

Corporate Counsel Fight IRS on Key Work Product Protection Case (National Law Journal), by Marcia Coyle:

The Association of Corporate Counsel and the U.S. Chamber of Commerce have joined an aerospace defense company in its court fight with the IRS in a closely watched tax case with work product protection at its core. U.S. v. Textron, pending in the 1st U.S. Circuit Court of Appeals, concerns the enforcement of an IRS summons seeking production of Textron's tax accrual work papers. A federal district court last August [blogged here and here] held that the Rhode Island-based company's workpapers were protected by the work product protection and it refused to enforce the summons. The Textron case, according to some tax practitioners, is the first test of the IRS' new and more aggressive position on requests for tax accrual workpapers.

Textron's tax accrual workpapers consisted of a spreadsheet that listed items on the company's tax returns which its in-house counsel believed might raises issues on which the tax laws were unclear and could be challenged by the IRS. The papers also contained estimates by counsel, in percentage terms, of Textron's chances of prevailing in litigation over any of the issues as well as dollar amounts reserved for the possibility that Textron might lose in any litigation. ...

In the audit involved in the 1st Circuit case, the IRS issued the summons for the tax accrual workpapers after questioning a number of transactions. Textron challenged the summons, arguing it was issued for an improper purpose — to gain leverage in settlement negotiations — and that its workpapers were protected by the attorney-client and tax practitioner privileges as well as by work product protection.

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