May 25, 2010

US Supreme Court Denies Textron’s Petition for Writ of Certiorari

Here is news from Stan Keller of Edwards Angell (we are posting memos on this development in our “Work Product” Practice Area):

Yesterday, the U.S. Supreme Court denied the petition for certiorari filed by Textron, leaving the decision in favor of the IRS in the First Circuit in place. What this means, given the split of authority in the Circuits, is unclear – other than that it means continued uncertainty with regard to the protected status of tax workpapers.

Here is more of a drill down: the Supreme Court’s denial of the petition for certiorari filed by Textron leaves in place the en banc decision of the U.S. Court of Appeals for the First Circuit in United States v. Textron, Inc., 577 F.3d 21 (1st Cir. 2009). That decision held that Textron’s tax workpapers, which were shared with its auditor, were prepared in the ordinary course in connection with preparing its annual financial statements and were not case preparation materials prepared “because of” or “for use in” litigation, and thus were not subject to protection from IRS summons under the work product doctrine.

The Supreme Court’s denial of cert. leaves the strict First Circuit test in place, which is in conflict with tests applied in other circuits. For example, the test in the Second Circuit applied in United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998), is whether the materials were prepared “in anticipation of” or “because of possible” litigation. This was the test previously applied by the First Circuit in Maine v. United States Dept. of Interior, 298 F.3d 60 (1st Cir. 2002).

The Fifth Circuit applies a stricter test but still not as strict as the First Circuit’s test in Textron. In United States v. El Paso, 682 F.2d 530 (5th Cir. 1982), the Fifth Circuit required the prospect of litigation to be the “primary motivating factor for the preparation of the documents.” Thus, until clarified by the Supreme Court in another case, we have uncertainty in the status of tax workpapers and other materials shared with auditors, and companies in the First Circuit share such materials with auditors at their peril.

Third-Party Review of Executive Compensation Practices II

In this follow-up podcast on, Greg Taxin of Soundboard Review Services discusses the latest developments for Soundboard Review Services (here is the first podcast), including:

– Soundboard has been quoted in its first proxy this year, for DuPont. Can you tell us what the DuPont board engaged you to do?
– How are investors using the information provided by DuPont in its proxy about your review services? Have investors contacted you?
– Having now done a number of these reviews, can you share any surprising practices you have seen or best practices that are perhaps uncommon?

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– 0.3% of Directorships Voted Down in 2009: Will 2010 Be Different?
– Proxy Access: Notes from a Stanford Law Panel
– New Type of Whistleblower: State Securities Regulator Resigns in Protest
– The Problem with IFRS: Little Independence for the IASB
– More on “Earnings Releases: Google’s Site as a ‘Recognized Channel'”

– Broc Romanek