Protecting Tax Accrual Workpapers from the IRS

For the last several years, corporate federal income tax professionals and tax counsel have battled the IRS over access to tax accrual workpapers. At the end of August, taxpayers won a key victory in federal district court in the U.S. v. Textron case -- but don't expect the IRS to give up.

The court in Textron granted confidentiality privileges for the company's workpapers, and its decision is instructive for business taxpayers. However, the court upheld the IRS' use of summonses and waived certain confidentiality privileges, so taxpayers remain vulnerable to IRS demands.

The Textron decision focuses new attention on steps corporate taxpayers can take to prevent disclosure of their sensitive tax accrual workpapers, especially given the IRS' more aggressive stance about demanding production.

Listen as our panel of veteran tax legal advisors explains the current state of legal protections for these workpapers in light of Textron and prior court decisions.

Our panel included:

Norma Schrock, Associate, Tax Policy Controversy Group, Latham & Watkins, Washington, D.C. She represents corporate clients at all levels of tax disputes, from audits to litigation. Previously, Norma was with the Justice Department's Tax Division for seven years as a trial attorney.

Susan Seabrook, Tax Partner, Latham & Watkins, Washington, D.C. She specializes in tax controversies and litigation and is active in the ABA Taxation Section. She formerly worked for the IRS in the District Counsel and National Chief Counsel Offices.

Elizabeth Askey, Partner, Pillsbury Winthrop Shaw Pittman, Washington, D.C. She specializes in complex tax controversies for multi-national corporations. Previously, she was a Director at PricewaterhouseCoopers and a Tax Counsel with the Treasury Department.

Edward Froelich, Of Counsel, Morrison & Foerster, Washington, D.C. He works in the firm's tax division and holds a master's degree in taxation. He formerly worked for the Justice Department's Tax Division and worked on tax controversies for another law firm.

The panel discussed ways to maximize your company's legal rights in these and other aspects of tax accrual workpapers:

• Work Product Protection: How to effectively argue that workpapers were prepared in advance of litigation, not in the ordinary course of business.
• Attorney-Client Privilege: How to show that tax counsel was providing legal advice, not merely giving an accounting review.
• Tax Practitioner Privilege: Circumstances under which your company's in-house tax staff's work qualifies as a legal review.
• Waiving Privileges: Where taxpayers must be careful of missteps that could force disclosure of otherwise protected workpapers.

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