## Facts

- The IRS audited Textron’s consolidated federal returns and issued an administrative summons seeking extensive records, including Textron’s tax-accrual workpapers.
- Textron produced other requested materials but withheld the tax-accrual workpapers, asserting attorney work-product protection.
- The tax-accrual workpapers were prepared within Textron’s tax department (including lawyers) to determine reserves for contingent tax liabilities reflected in audited, GAAP-compliant financial statements.
- The workpapers identified uncertain return positions, assessed litigation risk (including percentage “hazards” estimates), and quantified reserve amounts for potential IRS challenges and resulting liabilities.
- Textron permitted its independent financial auditor to review the workpapers on a confidential basis to evaluate the adequacy and reasonableness of Textron’s tax reserves.
- The United States filed a petition in federal district court to enforce the IRS summons under 26 U.S.C. §§ 7402(b), 7604(a).

## Issues

1. Whether the tax-accrual workpapers were prepared “in anticipation of litigation” and therefore protected as work product under Federal Rule of Civil Procedure 26(b)(3).
2. Whether the workpapers constituted ordinary work product or opinion work product.
3. Whether disclosure of the workpapers to Textron’s independent auditor waived any work-product protection.
4. If work product applied, whether the government showed substantial need and inability to obtain the substantial equivalent without undue hardship.

## Decision

- The court denied enforcement of the IRS summons as to the tax-accrual workpapers.
- The court held the workpapers were prepared in anticipation of litigation because they evaluated potential IRS disputes and litigation outcomes and set reserves accordingly.
- The court classified the materials as opinion work product because they reflected counsel’s mental impressions and legal assessments of Textron’s return positions.
- The court held that confidential disclosure to an independent auditor did not waive work-product protection because the auditor was not an adversary and disclosure did not materially increase the chance of access by the IRS.
- The court found the government failed to show substantial need or undue hardship, particularly because the IRS could obtain underlying facts through other audit tools and primarily sought Textron’s legal assessments.

## Legal Principles

- Work-product protection applies to documents prepared “because of” the prospect of litigation, even if they also serve business or regulatory purposes.
- Opinion work product—materials revealing an attorney’s mental impressions, conclusions, or legal theories—receives especially strong protection.
- Work-product protection is generally waived only by disclosures inconsistent with maintaining secrecy from adversaries; disclosure to a non-adversarial auditor, without increased risk of adversary access, does not necessarily constitute waiver.
- Even where ordinary work product may be discoverable, compelled production requires a showing of substantial need and inability to obtain the substantial equivalent without undue hardship; seeking an opponent’s litigation-risk analysis does not satisfy this standard.

## Conclusion

The district court held that Textron’s tax-accrual workpapers were protected opinion work product prepared in anticipation of potential IRS litigation, that sharing them confidentially with an independent auditor did not waive protection, and that the IRS failed to show the need required to compel production, so the summons was not enforced as to those materials.


United States v. Textron Inc. & Subsidiaries, 507 F. Supp. 2d 138 (D.R.I. 2007)