The Split Widens as the D.C. Court of Appeals Rules that Tax Accrual Workpapers Are Protected by the Work Product Doctrine

Abstract

In U.S. v. Deloitte LLP, the D.C. Circuit, applying the “because of” test, ruled that the IRS may not be entitled to a memorandum prepared by Deloitte LLP recording the thoughts provided orally of a client’s attorneys regarding contingent tax liabilities for financial reporting purposes, as the work product doctrine applies to documents “prepared in anticipation of litigation” with a dual non-litigation purpose. It also held that disclosure to Deloitte LLP of other documents did not waive work product protection. Conversely, the Fifth Circuit in U.S. v. El Paso Co. used the “primary purpose” test and denied work product protection to tax accrual workpapers. The First Circuit in U.S. v. Textron, Inc., using the “because of” test, denied work product protection to tax accrual workpapers, opining that they were not “prepared for use in litigation.” Proposed regulations require certain corporations to file a Schedule UTP, Uncertain Tax Position Statement.