Textron Decision Deems Tax Accrual Workpapers Protected Work-Product

The First Circuit's decision to uphold the district court's ruling that the taxpayer's tax accrual workpapers are protected work product should be viewed as a significant taxpayer victory, but the decision raises as many questions as it answers.

On January 21, 2009, the U.S. Court of Appeals for the First Circuit issued the much-anticipated decision in Textron Inc. v. United States. In a majority decision drafted by Judge Juan Torruella, the First Circuit upheld the U.S. District Court for the District of Rhode Island's decision that tax-accrual workpapers prepared by a taxpayer are protected by the work product doctrine. However, the majority held that waiver of the protection afforded by the work product doctrine may occur if the taxpayer's analysis is reflected in its auditor's workpapers, which are not protected by the work product doctrine. The court remanded the case to the district court for further proceedings to determine whether the auditor's workpapers