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U.S. Supreme Court declines to hear work product challenge

WASHINGTON – The U.S. Supreme Court has declined to take up a closely-watched case asking whether the work product doctrine prevents IRS officials from examining materials prepared by in-house attorneys in support of audited corporate financial statements.

The case, Textron v. U.S., involves an audit of certain financial statements prepared for Textron. Specifically, the IRS sought the disclosure of “tax accrual work papers” prepared by lawyers in Textron’s tax department in support of calculations used in the audited financial statements.

The 1st Circuit concluded that the materials were subject to disclosure, rejecting Textron’s contention that the documents were shielded under the work product doctrine.

“[T]he work product privilege is aimed at protecting work done for litigation, not in preparing financial statements,” the court said. “Textron’s work papers were prepared to support financial filings and gain auditor approval; the compulsion of the securities laws and auditing requirements assure that they will be carefully prepared, in their present form, even though not protected; and IRS access serves the legitimate, and important, function of detecting and disallowing abusive tax shelters.”

Business and corporate counsel groups, including the U.S. Chamber of Commerce, have urged federal courts to protect documents and communications between in-house attorneys, company officials and non-adversarial third parties, such as auditors. They argue that, absent confidentiality protection, companies will be forced to choose between having open communications with their auditors and protecting themselves from litigation exposure.