Textron En Banc Decision -- Government Wins

The First Circuit has held that tax accrual workpapers disclosed to the outside accountants preparing the audited financial statements are not subject to the work product privilege. The decision, rendered en banc in a 3 - 2 split by the full court, reverses the prior panel's decision (a 2 -1 split). The opinion can be viewed here.

Tax talking heads had proclaimed loudly and often about this case for a long time and will now have something new to fulminate about. Much of the practicing bar will see the decision as taking from them some of the magic they offer clients for high fees and thus will complain loudly. Such magic and the fees it produces, after all, is as much their entitlement as, say, welfare for the indigent.

I think this quote from the majority en banc decision pretty much sums it up:

Textron apparently thinks it is "unfair" for the government to have access to its spreadsheets, but tax collection is not a game. Underpaying taxes threatens the essential public interest in revenue collection. If a blueprint to Textron's possible improper deductions can be found in Textron's files, it is properly available to the government unless privileged.

And, of course, the court held these documents were not privileged.

It's Not Over Until the First Circuit Sings

The Tax Prof Blog reports that the First Circuit has granted rehearing in the infamous Textron Case denying the Government's attempt to summons tax accrual workpapers -- the tax mother lode for the IRS. The Tax Prof Blog report may be reviewed here (along with links to the opinion and some commentary on the opinion). Prediction: The Government will get the workpapers. Perhaps we'll write more on this later; perhaps not.