FEI Files Amicus Brief In Textron Case About Attorney Client,
Tax Practitioner-Client Privilege
April 21, 2008
FEI Summary

FEI’s Committee on Taxation (COT) and Committee on Corporate Reporting (CCR) filed an amicus curiae “friend of the court” brief on April 4th in support of the District Court’s decision in favor of Textron in the case, United States v. Textron, Inc., (the “Textron” case).    See also this FEI press release.

Textron is a case concerning the review of the attorney-client, tax practioner-client, and work product privileges with regard to tax accrual workpapers.  It also discussed when those privileges could be waived or could be overcome. 

Textron’s in-house counsel provided the accountants for purposes of certifying the financial statements a tax reserve summary spreadsheet that lists the uncertain issues identified by the tax advisors and, for each issue, the hazards of litigation percentage and assigned dollar values. 

The IRS issued an administrative summons seeking these tax accrual workpapers and supporting notes and memoranda written by in-house attorneys.  When Textron refused to comply, the government initiated a summons enforcement action in district court.  These tax accrual workpapers had been provided to Textron’s independent auditor in the context of its financial statement audit.  The government asserted that the workpapers were prepared in the ordinary course of business and, as such, were not privileged.

On August 29, 2007, the court held that the tax accrual workpapers were protected by the work product protection and thus denied enforcement of the summons. See United States v. Textron, Inc., No. 06-198T (D.R.I. Aug. 29, 2007).  The court found that the tax accrual workpapers were also protected by both the attorney-client privilege and tax practitioner privileges; however, the court considered and concluded that disclosure of the workpapers to the auditors waived these privileges.

The decision offers much promise to corporate taxpayers concerned about the protection of confidential materials, but the contours of the opinion should be carefully evaluated.  Accordingly, the outcome of this case could determine whether a publicly-traded company can prepare, and share with its independent auditor, a candid evaluation of its exposure with respect to any pending or threatened claim without fear that this information will be available to litigation adversaries.

The IRS has appealed this case to the U.S. Court of Appeals for the First Circuit. FEI’s Tax Committee and Committee on Corporate Reporting filed an amicus curiae “friend of the court” brief on April 4th in support of the District Court’s decision.    

The Committees argue that the lower court decision appropriately balances the competing interests of the IRS, the investing public, and the fairness considerations that protect attorney work product.  This appropriate balancing should permit companies to share candid assessments of potential litigation claims with their outside auditors, for example, without fear that such information would be accessible by competitors or adversaries.

For continuing information on tax matters and corporate tax, particularly, get involved with FEI's Committee on Taxation (COT), which analyzes and comments on regulatory and legislative matters involving taxation. For further information on FEI COT, contact Matt Miller in FEI's Washington, D.C., office by email: mmiller@financialexecutives.org,  or telephone: (202) 626-7804.

Prepared April 21, 2008 by Matt Miller, Director, Tax and Economic Policy, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.