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Tax Notes

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Tax Notes



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In its rehearing of Textron, the First Circuit has an opportunity to rectify an error and curb unwise recent expansion of work product protection for tax accrual workpapers. In August 2007, a district court denied the government’s petition for enforcement of an IRS summons on Textron Inc. and its subsidiaries for tax accrual workpapers in connection with IRS examinations of the taxpayers’ 1998 to 2001 income tax returns. A divided panel of the First Circuit affirmed in January 2009. In March 2009, the First Circuit withdrew the panel opinion and dissent, and it set the case for en banc hearing on June 2, 2009.

Reaction to the various Textron opinions has been mixed. I join those who think the district court and the panel majority erred. Indeed, I believe tax accrual workpapers should never qualify for work product protection.

This report does not purport to answer all questions about the work product doctrine generally, or even all questions about the doctrine as applied to tax accrual workpapers. Instead, this report considers a perspective that has not been fully developed in other commentary on Textron and related cases. Specifically, there is a disconnect between the purposes of the work product rule and the decisions shielding tax accrual workpapers. The values animating the rule would not be compromised by IRS access to tax accrual workpapers. In fact, in some respects, those values would be furthered.

Part I of this report describes tax accrual workpapers. It also outlines controversy over tax accrual workpapers, both generally and in the context of Textron. Part II describes the purposes the work product doctrine is intended to serve. Part ill shows that enforcement of IRS summonses for tax accrual workpapers would not traduce those purposes and would actually promote them. Part IV suggests that this purpose-based analysis is legitimately available to textualist judges as well as to judges who overtly embrace purposivism as their preferred mode of interpreting statutes and rules.


© 2009 Steve R. Johnson


First published in Tax Notes.

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