Supreme Court Declines to Hear Textron Work Product Privilege Case

The United States Supreme Court on May 24 denied a writ of certiorari in the case of Textron Inc., Sup. Ct. Dkt. No. 09-750 (5/24/10). The decision not to hear the case lets stand the First Circuit’s decision that a corporation’s tax accrual workpapers were not protected from an IRS summons by the work product privilege (Textron Inc., No. 07-2631 (1st Cir., 8/13/09) (en banc)).


While auditing the 1998–2001 tax returns of Textron Inc., the IRS issued an administrative summons for Textron’s tax accrual workpapers. These workpapers are spreadsheets prepared by persons (some of whom were lawyers) in Textron’s tax department to support Textron’s calculation of its tax reserves for its audited financial statements. Textron refused to supply the workpapers to the IRS, and the dispute ended up in litigation.

In district court, Textron argued that its tax accrual workpapers were protected by either the attorney-client privilege, the tax practitioner privilege, or the work product privilege. The district court rejected Textron’s attorney-client and tax practitioner privilege claims; however, it held that Textron’s tax accrual workpapers were protected by the work product privilege (Textron Inc., 507 F. Supp. 2d 138 (D.R.I. 2007)).

Among other issues, the court addressed whether Textron created the workpapers “in anticipation of litigation” because the work product privilege does not protect documents prepared in the ordinary course of business. The district court concluded that although Textron undeniably created the workpapers to satisfy its financial audit requirements, “but for” the prospect of litigation the documents would not have been created at all, and therefore they were protected by the work product privilege.

On appeal, a three-judge panel of the First Circuit affirmed the district court. The court then granted an IRS petition to hear the case en banc. The full court reversed the district court and held that the work-product privilege did not apply to Textron’s tax accrual workpapers because the documents sought were prepared not for litigation but for a statutorily required purpose of financial reporting and therefore were prepared in the ordinary course of business. (For a discussion of the First Circuit decision, see “Tax Accrual Workpapers Not Protected by Work-Product Privilege,” The Tax Adviser (October 2009).)

The Supreme Court’s decision not to grant the writ of certiorari “imports no expression of opinion upon the merits of the case” (Carver, 260 U.S. 482, 490 (1923)), but it lets the First Circuit’s decision stand.

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