OPEN RESERVE-ATIONS?: UNITED STATES V. TEXTRON INC. AND ITS APPLICATION TO INTERNATIONAL TAX ACCOUNTING

Sep 4, 2026

The note examines United States v. Textron Inc. and its impact on international tax accounting, focusing on an IRS summons for tax accrual workpapers and Textron’s attempt to invoke the work-product doctrine. The First Circuit reversed lower-court privilege findings, allowing discovery because the workpapers were prepared to support financial filings and auditor approval rather than anticipated litigation. It then evaluates policy arguments on discoverability and considers how the ruling may affect future adoption of international income tax standards, including IFRS-related transitions.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages28

Reading Time1 h 11 min

AccessFree to download

INTRODUCTION

Background and controversy of the Textron ruling

I. THE NECESSARY BACKGROUND: FIN 48 AND THE WORK PRODUCT PRIVILEGE

A. Accounting for Uncertain Tax Positions and FIN 48

Part I: Foundational background on financial statement preparation

Part II: Work-product doctrine and analysis of Textron

Part III: Policy arguments on discoverability

Part IV: Transition to IFRS and hypothesized consequences

OPEN RESERVE-ATIONS?: UNITED STATES V. TEXTRON INC. AND ITS APPLICATION TO INTERNATIONAL TAX ACCOUNTING Adam M. Braun* INTRODUCTION It has been described as an “upheaval” of established law.1 It will open up a “Pandora’s box” and “turn the tables” on previous legal understandings.2 It “eviscerates” long-standing legal doctrine.3 What sort of revolutionary event could invoke such grim language? Surely,“It” must be a headline case involving a high-profile social issue like the constitutionality of same-sex marriage,4 corporate contributions to political campaigns,5 or restrictions on First Amendment rights. Instead,“It” is the First Circuit’s opinion in United States v. Textron Inc.,6 a case involving an Internal Revenue Service (IRS) summons for tax accrual workpapers and Textron’s attempts to protect the documentation under the work-product doctrine. The First Circuit reversed the Federal District Court of Rhode Island and set aside a First Circuit panel’s holding the workpapers as privileged, instead holding that, because the workpapers were prepared “to support financial filings and gain auditor approval,”7 and not for use in litiga- * Candidate for Juris Doctor, University of Notre Dame Law School, 2011; M.S. in Accountancy, 2007; B.B.A. 2006, University of Notre Dame. I would like to thank Professor Matthew Barrett for his advice and discussion during the preparation of this Note. 1 David E. Frank, Attorneys Predicting ‘Upheaval’ in Wake of Work-Product Ruling, MASS. LAW. WKLY., Aug. 24, 2009, at 1. 2 Id. 3 Amir Efrati, Ruling in Tax-Auditing Case Puts Corporations on Edge, WALL ST. J., Aug. 20, 2009, at A9, available at [http://online.wsj.com/article/SB1250723970557445](http://online.wsj.com/article/SB1250723970557445) [33.html.](33.html.) 4 See, e.g., Strauss v. Horton, 207 P.3d 48 (Cal. 2009) . 5 See Citizens United v. FEC, 130 S. Ct. 876 (2010) . 6 577 F.3d 21 (1st Cir. 2009) . [7](7 Id. at)[ Id.](7 Id. at)[ at](7 Id. at) 31. 824 notre dame law review [vol. 86:2 tion, the IRS could freely discover the tax accrual workpapers. The corporate world immediately criticized the controversial ruling, as critics rushed to assert that the ruling makes it more difficult to protect their clients in an increasingly opaque tax system.8 Why such strong criticism? First, corporate tax departments and IRS auditors have engaged in a tug-of-war over the IRS’s ability to access a corporation’s tax accrual workpapers, which are generally prepared both to support tax calculations published in its financial statements and its tax return and to gain insight into certain transactions whose tax effects may not have found their way onto the corporation’s tax return. Textron, by rejecting the argument that tax accrual workpapers are prepared “in anticipation of [future] litigation” with the IRS, serves as the latest blow to the corporate world’s hopes of work product protection. In addition, the First Circuit’s conclusionsin Textron have ramifications beyond the current financial reporting regime; as early as 2014, U.S. companies may be required to implement new international standards for income tax accounting, particularly when accounting for uncertain tax positions. This Note attempts to lay the foundation for how (if at all) these new international standards, in conjunction with the Textron decision and recent IRS Announcement 2010-75, will affect corporate tax departments across the United States. Part I of this Note briefly provides the foundational background on financial statement preparation and the current rules regarding tax accrual calculations. Part II then discusses the current status of work-product doctrine with respect to tax accrual documentation, including an analysis of the First Circuit’s Textron decision. Part III lays out the major policy arguments both for and against discoverability of tax accrual documentation. Finally, Part IV considers the upcoming transition to International Financial

FAQs

What issue in United States v. Textron Inc. triggered the legal dispute?

The dispute concerned an IRS summons seeking tax accrual workpapers and whether Textron could protect the documentation under the work-product doctrine.

Why did the First Circuit reject privilege over the tax accrual workpapers?

The court held the workpapers were prepared to support financial filings and gain auditor approval, not in anticipation of litigation, so the IRS could discover them.

How does the note connect Textron to international tax accounting and future standards?

It argues the decision has consequences beyond current financial reporting, potentially affecting how companies implement international standards for income tax accounting, particularly for uncertain tax positions.

Sep 4, 2026

Uploaded by River Wang