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Textron Wins Round in IRS Tax Shelter Case January 26, 2009 - A federal appeals court has ruled that the Internal Revenue Service may not compel Textron to turn over tax documents the agency has been seeking related to certain leveraged lease deals. Since 2006 the IRS had been seeking a court order forcing Textron to release certain internal documents relating to its use of allegedly abusive tax shelters. The IRS has been demanding copies of the company's “tax-accrual work papers” for 2001. At issue are at least nine questionable "sale/leaseback" transactions, which the IRS contends were crafted as "sale in, lease out" (SILO) deals - illegal since 2004. On Wednesday (1/21) the 1st U.S. Circuit Court of Appeals in Boston upheld an earlier U.S. District Court ruling that Textron's tax-accrual work papers are privileged, but returned to a lower court the question of whether Textron may be compelled to turn over documents prepared by its auditors, Ernst & Young. Tax accrual workpapers are defined as audit workpapers prepared by a taxpayer, the taxpayer’s accountant, or an independent auditor to evaluate the sufficiency of the client's reserves for potential tax liability. The court in the Textron case ruled that the papers are protected from IRS summons because they are attorney work product. According to professors Jean T. Wells and Alexander L. Gabbin, writing for The CPA Journal, the Textron decision “will have far-reaching implications for the treatment and discoverability of tax accrual workpapers prepared in reliance on advice provided by attorneys.” |
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