## Facts

- Textron, a public company, had to produce audited financial statements and maintain reserves for contingent tax liabilities.
- To support those reserves, Textron’s tax department prepared tax-accrual workpapers identifying uncertain tax positions, quantifying amounts at risk, and estimating litigation outcomes if challenged by the IRS.
- The workpapers were created with input from in-house and outside tax counsel and compiled into spreadsheets used to compute the company’s tax reserves.
- Textron’s independent auditor reviewed the workpapers and required their supporting analysis to approve the tax-reserve figures reflected in Textron’s audited financials.
- During an IRS audit focused on transactions the IRS suspected were abusive tax shelters, the IRS issued an administrative summons seeking Textron’s tax-accrual workpapers.
- Textron refused production, asserting the attorney work-product doctrine; the United States sued to enforce the summons.

## Issues

1. Whether tax-accrual workpapers prepared to support financial-statement tax reserves, though containing legal assessments, are protected as attorney work product as materials “prepared in anticipation of litigation.”
2. Whether the IRS may compel such workpapers by summons when they were generated to satisfy securities-law reporting and audit requirements.

## Decision

- The en banc First Circuit reversed the district court and ordered enforcement of the IRS summons.
- The court held the workpapers were not protected by the attorney work-product doctrine because they were not prepared for use in possible litigation.
- The court treated the workpapers as created in the ordinary course of business to meet financial reporting and audit demands, even if they reflected the likelihood of litigation outcomes.
- The court rejected applying a broad “because of” approach on these facts, concluding that the relevant question was whether the documents were prepared with a litigation-use purpose.
- Relying in part on the policy and reasoning of United States v. Arthur Young & Co., the court emphasized the IRS’s legitimate need to examine tax-accrual workpapers to detect and disallow abusive tax shelters.

## Legal Principles

- Attorney work-product protection applies to materials prepared for use in litigation, not to documents prepared in the ordinary course of business that would exist in essentially similar form absent litigation.
- The presence of legal analysis or the prospect of future disputes does not, by itself, transform financial-reporting and audit materials into protected work product.
- For dual-purpose documents, work-product protection in this context depends on whether the documents were created with a purpose of assisting in conducting litigation, not merely because litigation was a foreseeable possibility.

## Conclusion

The First Circuit held that Textron’s tax-accrual workpapers, created to satisfy financial reporting and audit requirements, were not attorney work product and therefore had to be produced in response to the IRS’s administrative summons.


United States v. Textron Inc., 577 F.3d 21 (1st Cir. 2009) (en banc)