:: Work Product Protection Of Documents Applied Against IRS

The IRS argues that preparation of tax returns is not meant to be an adversary process, but rather is a self-reporting regime that relies on the good faith of taxpayers. The IRS reasons that it is not seeking to gain unfair litigation advantage but rather to verify self-assessment in an environment where the taxpayer holds all the relevant information. Textron responds that it routinely engages in administrative disputes and even federal court litigation with the IRS.

United States v. Textron, Inc., 553 F.3d 87 (1st Cir. R.I. 2009)

This recent First Circuit opinion highlights one of the advantages of engaging legal counsel in potential disputes with regulatory agencies such as the Internal Revenue Service. In this case, the IRS sought certain work papers through an administrative subpoena. The Court found that the work papers constituted protected work product and therefore did not have to be provided to the IRS.

The Court described the work product doctrine in the following terms:

“[T]he work-product doctrine does apply in tax summons enforcement proceedings.” Upjohn Co. v. United States, 449 U.S. 383, 386, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). The work-product doctrine protects “documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative.” Fed. R. Civ. P. 26(b)(3)(A). In assessing whether a document was prepared in anticipation of litigation, this circuit uses the “because of” test. Maine, 298 F.3d at 68. Under this test, a document is protected “if, ‘in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation.’” Id. at 70 (quoting United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998)) (emphasis in original).

It is also our law that, “the ‘because of’ standard does not protect from disclosure ‘documents that are prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation.’” Id. (quoting Adlman, 134 F.3d at 1202). As discussed below, we hold in this case that the presence of a business purpose does not defeat work-product protection.

Note: The case provides insight into the effects of sharing protected documents with outside parties, such as tax accountants. This question ultimately ended up in a factual question pertaining to the taxpayer’s control over the documents in issue. The case points up the importance of guarding against forfeiting the protection of the work product protection through third party disclosures