# Petition for Writ of Certiorari — Textron Inc. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1402%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2010 - **Citation:** 560 U.S. 924 ## Text el 1% bene 08 750 ODE 24 7p No. ORRICE OF-THNG-CLERK Jn the Supreme Court of the Gnited States TEXTRON INC. AND SUBSIDIARIES, PETITIONER v. UNITED STATES OF AMERICA ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT PETITION FOR A WRIT OF CERTIORARI JOHN A. TARANTINO KANNON K. SHANMUGAM PATRICIA K. ROCHA Counsel of Record NICOLE J. DULUDE ANNA-ROSE MATHIESON ADLER POLLOCK & SHEEHAN GEORGE W. HICKS, JR. P.C. SARAH F’. TEICH One Citizens Plaza, 8th Floor ALLISON B. JONES Providence, RI 02903 WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 484-5000 QUESTION PRESENTED Whether the work-product privilege in Federal Rule of Civil Procedure 26(b)(3), which protects documents that are “prepared in anticipation of litigation or for tri- al,” is limited to documents that are prepared for use in litigation. (T) CORPORATE DISCLOSURE STATEMENT Textron Inc. has no perent corporation, and no pub- licly held company owns 10% or more of Textron’s stock. (IT) TABLE OF CONTENTS Page II TU cvvscccncecsnccecesccdesahtintvanmasedenatiamsaieiaaiaiesemmmaanaail 1 POT dcriccsvststotiasvicnvestanccnniieisliannapaianiniiinaama 2 Bene I snsistsstitinrniencecsetscsainlinsiensdiiemaemamnmnnan alacant 2 OE scinsecicistssitenisininguleiiinnnnminanaaeiaia 2 Reasons for granting the petition............0sssessssssererrrseeressseneres 11 A. The decision below deepens a circuit conflict concerning the scope of the work- IE Si ssirsieinsseninecincaintitnnitdninersntinsnticinimnaiete 12 B. The court of appeals’ decision is erroneous. ..............0+ 20 C. The question presented is an exceptionally important and recurring one that merits the Court’s review in this CaS@...........sscssesseersssssseresseess 25 CIN, oi icicccerrasssarebinnecrioiediniccnnemmecunnlnamananeananenn 31 I De bas sisisissisiviceiacnesstinaacnsinictanpeanseiiaminaiiiameaamammaia la PIE © csccsssisrevisisticczcrimaviscinavcncaniiniainmaeienl 47a FE eesisstoseissstrinsntisimandaclainaniinteaniniaaasmaanaan 89a PIE FD scscscvsssssevisosiasinissninntanamunidaasnsanseiammaenmminiaaiael 119a PIII GE snseivvisestesesnnrisniriidicciapiaiamnamisieaaniaaaads 12la TABLE OF AUTHORITIES Cases: Binks Manufacturing Co. v. National Presto Industries, Inc., 709 F.2d 1109 (7th Cir. 1983)............. 12 Carcieri v. Salazar, 129 S. Ct. 1058 (2009)... ecceceeeees 21 Commissioner of Revenue v. Comcast Corp., 901 N.B.2d 1185 (Mass. 2009) ....scsccscrsrsrosssscrrscecevosersesees 17 Delaney, Migdail & Young, Chartered v. IRS, Ge Fe Cs ly BED wens etcninsasesnissensentosassisesscesesee 26 Department of Interior v. Klamath Water Users Protective Association, 5382 U.S. 1 (2001)............0.ccceeee 3 FTC v. Grolier, Inc. , 462 U.S. 19 (1988)..........ecsccccecesseeeees 21 Gottlieb v. Wiles, 143 F.R.D. 241 (D. Colo. 1992).............. 16 (IIT) Cases—continued: Henderson v. Newport County Regional YMCA, ns Es sechlarecnciustuanabimsaninna 17 Hickman Vv. Taylor, 329 U.S. 495 (1947) ....ccccscceeceeees passim In re Grand Jury Subpoena, 357 F.3d 900 (9th Cir. 2004)................. ecco 12, 18, 14, 18 In re Honeywell International, Inc., Securities Litigation, 230 F.R.D. 293 (S.D.N.Y. 2008) .........ccececee 27 In re Kaiser Aluminum & Chemical Co., 214 F.3d 586 (5th Cir. 2000), cert. denied, ERR ete cea cae 15 In re Sealed Case, 146 F.3d 881 (D.C. Cir. 1998)......... 12, 14 Lawrence E. Jaffe Pension Plan v. Household International, Inc., Be Fes BE ats Bits ae sntnccsacicassensttenrsesseceisscenees 27 Maine v. United States Department of Interior, BS FBG GO CAGE Cae, BED ccc evcccocercesscesccserccsscsevesssossesevene 16 Martin v. Bally’s Park Place Hotel & Casino, 983 F.2d 1252 (3d Cir. 1993) ..............-.--00+ gidincsiaannaiida 12 McEwen v. Digitran Systems, Inc., 155 F.R.D. 678 (D. Utalh 1994) .....cccccscsccsessrcsssessecsocescenees 16 Mohawk Industries, Inc. v. Carpenter, RE nC 30 National Union Fire Insurance Co. v. Murray Sheet Metal Co., 967 F.2d 980 (4th Cir. 1992)............0. 12 NLBB vy. Sears, Roebuck & Co., ei ciimantnsabasions 20, 21 Regions Financial Corp. v. United States, No. 06-895, 2008 WL 2139008 (N.D. Ala. May 8, 2008), appeal dismissed, No. 08-13866 (11th Cir. Dec. 30, 2008) .................0+ 16, 19 Senate of the Commonwealth of Puerto Rico ex rel. Judiciary Committee v. United States Department of Justice, 823 F.2d 574 (D.C. Cir. 1987) ........... Saas ies 14, 20 Simon v. G.D. Searle & Co., 816 F.2d 397 (8th Cir.), cert. denied, 484 U.S, 917 (1987)......cccccsssssscsssessscesseeees 12 Page Cases—continued: Springfield Terminal Railway Co. v. Department of Transportation, 754 A.2d 353 (Me. 2000).............:ce0e 17 Swidler & Berlin v. United States, eo ciueuetsunsvenbinieanieidioia 3 Textron Inc. v. Commissioner, Le 18 Tronitech, Inc. v. NCR Corp., 108 F.R.D. 655 (S.D. Ind. 1985) ..........cccccssssccssessessseceereee 27 United States Fire Insurance Co. v. Bunge North America, Inc., 247 F.R.D. 656 (D. Kan. 2007).............. 16 United States v. Adlman, BIO Fee Be Ge Cire BIMOD csceccrsesescscnsveciscrencecesenen passim United States v. Arthur Young & Co., I os csaccsnsennsissamebdniniadisianntaass 26, 29, 30 United States v. Davis, 636 F.2d 1028 (5th Cir. Unit A Feb. 1981), cert. denied, 454 U.S. 862 (1981).........c.cccscccssesereesssneees 15 United States v. El Paso Co., 682 F.2d 530 (5th Cir. 1982), cert. denied, . ee ie ica ciicsionnacoetnsnilasnlidecicsansiaseesaanis 15, 20 United States v. Hubbell, 530 U.S. 27 (2000) ...............:0000- 3 United States v. Nobles, 422 U.S. 225 (1975) ......ccccccscsseees 22 United States v. Roxworthy, 457 F.3d 590 (6th Cir. 2006)...............cccccsescseseees 12, 18, 19 Upjohn Co. v. United States, 449 U.S. 383 (1981) ............. 22 Statutes and rules: ES hy ET aS mT Ae ae Ce aT TSS AE 6 Be I aiia ss inasinssi cee consanincapedadeissacdaabieluaueeaatanmame 2 Re EX RONEN TENT passim Be eo ED vciccccvcscnsssanieosseenaicesstaeansanaacnmiiie 2 Ps ie SEs Fs I iscscsnenensssnsesesstvscstnintesmenasnesamenii 4 2 Rt A ____. ; REE 4, 23 Fed. R. Civ. P. 26(b)(3) advisory committee’s note PUTT tesidedasntenadinitinannndevsasth senisdbeciepaseetammnauiaamaiasnanaial 23 Page Miscellaneous: Stuart J. Bassin, Managing Tax Accrual Workpapers After ‘Textron,’ Se ee Ny TIT a sacissococscsnesecsnsnnsseqneesssescsesncasevens 29 Nancy T. Bowen, William S. Lee & Robert C. Morris, Newly Minted ‘For Use in Possible Litigation’ Test of ‘Textron’ May Have Far- Reaching Implications for Companies, TT since scsctsnnntennstessectnomeseneannnenesees 28 Kim Dixon, U.S. IRS Could Seek More in Company Audits—Official, Reuters, Nov. 19, 2009............000000 26 Amir Efrati, Ruling in Tax-Auditing Case Puts Corporations on Edge, Wall St. J., Ata. 20, 2008, at Ad ...ccccrccoccrsrorcerrccscoseccoscece 28 Michelle M. Henkel, ‘Textron’ Eviscerates the 60- Year-Old Work Product Privilege, By re I aaa a ccsiancntnesnnspenenecsncccsonsocssees 28 I.R.S. Announcement 2002-63, 2002-2 C.B. 72.......ceccesesesees 5 I.R.S. Notice 2005-13, 2005-1 C.B. 630 ............ceccceeesereseeees 5 Robert Khuzami, Remarks at AICPA Nationa! Con- ference on Current SEC and PCAOB Develop- ments (Dec. 8, 2009) . .........ccsceeeceseseeeereeees 28 Scott Novick, What In-House Tax Professionals Should Do in Light of ‘Textron,’ Global Tax Blog (Aug. 31, 2009) .................. 29 Claudine Pease-Wingenter, Prophetic or Mis- guided? The Fifth Circuit's (Increasingly) Un- popular Approach to the Work Product Doctrine, I aca eatnpnssscsoniocéns 15 Robert W. Pommer III, First Circuit Reverses Course in Closely Watched Work Product Case; E'stablishes Broad New Standard That Could Extend Outside Tax Area, 41 Sec. Reg. & Law Report 2050 (2009) ...............0c0000 29 VII Page Miscellaneous—continued: Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure (2d ed. 1994 & Supp. 2009)...........:ceceeseeeeseree 13, 23, 26, 28 In the Supreme Court of the Gnited States No. TEXTRON INC. AND SUBSIDIARIES, PETITIONER v. UNITED STATES OF AMERICA ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT PETITION FOR A WRIT OF CERTIORARI Textron Inc., together with its subsidiaries, respect- fully petitions for a writ of certiorari to review the judg- ment of the United States Court of Appeals for the First Circuit in this case. OPINIONS BELOW The opinion of the en banc court of appeals (App., in- fra, 1a-46a) is reported at 577 F.3d 21. The opinion of the court of appeals panel (App., infra, 47a-88a) is re- ported at 553 F.3d 87. The district court’s order denying respondent’s petition to enforce administrative summons (App., 7nfra, 89a-118a) is reported at 507 F. Supp. 2d 138. JURISDICTION The judgment of the court of appeals was entered on August 18, 2009. On October 20, 2009, Justice Breyer extended the time within which to file a petition for a writ of certiorari until December 24, 2009. The jurisdic- tion of this Court is invoked under 28 U.S.C. 1254(1). RULE INVOLVED In relevant part, Federal Rule of Civil Procedure 26(b)(3)(A) provides: Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent). STATEMENT In 2008, the Internal Revenue Service (IRS) com- menced an audit of petitioner’s tax returns for tax years 1998 to 2001. In connection with that audit, the IRS is- sued an administrative summons for petitioner’s work- papers relating to its potential tax liabilities for tax year 2001. Citing, inter alia, the work-product privilege, peti- tioner withheld certain documents, including a spread- sheet prepared by petitioner’s lawyers that listed items on its return whose treatment was uncertain (and, as to each item, estimated the likelihood of success in the event of a dispute). The government then filed a petition to enforce the summons in the United States District Court for the District of Rhode Island. The district court denied the petition. App., infra, 89a-118a. A panel of the court of appeals initially affirmed. /d. at 47a-8&a. After granting rehearing en banc, however, the court of appeals reversed. /d. at la-46a. 1. This case presents a substantial circuit conflict on an issue of immense practical importance: the scope of the work-product privilege. The Court first recognized that privilege in Hickman v. Taylor, 329 U.S. 495 (1947).’ In the course of discovery, the plaintiff in Hick- man had sought materials “secured by an adverse par- ty’s counsel in the course of preparation for possible liti- gation after a claim ha[d] arisen.” /d. at 497. Although the then-recent Federal Rules of Civil Procedure took a “broad and liberal” approach to discovery, id. at 507, and by their terms seemingly permitted the plaintiff to ob- tain the materials in question, see id. at 505-506, the Court held that the “work product” privilege protected “written materials obtained or prepared by an adver- sary’s counsel with an eye toward litigation.” /d. at 511. The Court explained that the work-product privilege was justified by historical practice, see id. at 510 n.9, and that a contrary rule would lead to “[iJnefficiency, unfairness and sharp practices,” with the result that “the legal pro- fession would be demoraliz[ed}” and “the interests of the clients and the cause of justice * * * poorly served,” id. at 511. In 1970, the Federal Rules of Civil Procedure were amended to codify the work-product privilege. Rule 26(b)(3) provides that the work-product privilege covers “documents and tangible things that are prepared in an- ticipation of litigation or for trial by or for another party ' Hickman has variously been described as giving rise to a “doc- trine,” “protection,” or “privilege.” In keeping with the terminology of the Court’s more recent decisions, we refer here to the “work- product privilege.” See, eg., Department of Interior v. Klamath Water Users Protective Ass'n, 582 U.S. 1, 7 (2001); United States v. Hubbell, 530 U.S. 27, 31 (2000); Swidler & Berlin v. United States, 524 U.S. 399, 402-408 (1998). or its representative.” The privilege is qualified rather than absolute: where a party to litigation can show that it “has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means,” the party can obtain production of otherwise protected materials. Fed. R. Civ. P. 26(b)(3)(A)(ii). +Even upon such a showing, however, the party may not obtain production of so- called “opinion work product”: that is, materials that would “disclos[e] * * * the mental impressions, con- clusions, opinions, or legal theories of a party’s attorney or other representative concerning the litigation.” Fed. R. Civ. P. 26(b)(8)(B). This case concerns the issue of when a document has been prepared “in anticipation of litigation,” and is therefore protected by the work- product privilege, under Rule 26(b)(3). 2. Textron Inc. is a miulti-industry corporation whose subsidiaries and operating units include such well- known businesses as Cessna Aircraft and Bell Helicop- ter. Textron and its subsidiaries file consolidated tax re- turns; they are collectively the petitioner before this Court. Because Textron is one of the Nation’s largest corporations, petitioner’s tax returns are routinely au- dited; in fact, the IRS has audit staff permanently based onsite at Textron, and, during the relevant period, had approximately 20 employees assigned to audit petition- er’s returns. In 2003, the IRS commenced a scheduled audit of petitioner’s tax returns for tax years 1998 to 2001. As part of that audit, the IRS issued more than 500 formal requests for information; petitioner produced “many file cabinets” worth of material in response to those requests. App., infra, 4a, 90a-91a; C.A. App. 184, 194-195, 227. In tax year 2001, one of Textron’s subsidiaries had engaged in several “sale-in, lease-out” transactions in- volving telecommunications and rail equipment. In 2002, the IRS adopted a policy under which, where a taxpayer claims benefits from two or more similar “listed transac- tions” (ie., transactions whose tax treatment was, in the IRS's view, open to question), the IRS would seek all of the taxpayer’s “tax accrual workpapers” (ie., workpa- pers relating to potential tax liabilities) for the tax year in question, regardless whether those workpapers per- tained to the transactions at issue. See I.R.S. An- nouncement 2002-63, 2002-2 C.B. 72. Although the “sale- in, lease-out” transactions were not classified as “listed transactions” at the time Textron’s subsidiary engaged in them, they were so classified several years later, and petitioner duly informed the IRS of the transactions. See I.R.S. Notice 2005-13, 2005-1 C.B. 630; App., infra, 4a, 91a; C.A. App. 252-255. Based on those transactions, and notwithstanding the fact that the subsidiary had received legal advice that its tax treatment of those transactions was appropriate, the IRS issued a request, followed by an administrative summons, for petitioner’s 2001 workpapers. In re- sponse, petitioner expressed its willingness to produce documents relating to the transactions at issue. But it withheld other documents relating to its return as a whole, including, most notably, a spreadsheet prepared by its in-house lawyers that listed items on its return whose treatment was uncertain (and, as to each item, es- timated the likelihood of success in the event of a dis- pute),? and background memorandums that set out the legal analysis behind those estimates. By its own admis- * A redacted version of a comparable spreadsheet from a prior tax year was introduced as an exhibit in the district court and is repro- duced in the appendix to this petition at pages 121a to 122a. sion, the IRS sought those documents in order to obtain a “roadmap” to petitioner’s tax return, because those documents would “provid[e] guidance” in reviewing peti- tioner’s tax return and “disclos[e] unidentified issues.” App., infra, 5a, 3la, 91a-93a; Gov't C.A. Br. 7, 19; Gov’t C.A. Reply Br. 16 n.7. 3. Pursuant to 26 U.S.C. 7604, the government then filed a petition to enforce the summons in the United States District Court for the District of Rhode Island. As is relevant here, petitioner contended that the with- held documents were protected by the work-product pri- vilege. In support of that contention, petitioner submit- ted affidavits regarding the method by which the docu- ments were prepared, and also presented testimony at an evidentiary hearing concerning the documents’ pur- poses. Specifically, the head of petitioner’s tax depart- ment testified that, although one purpose of the docu- ments was to assist petitioner’s independent auditor in reviewing the amount set aside in reserve for potential tax liabilities in the event of disputes, another purpose was to guide petitioner in making litigation or settlement decisions concerning the tax treatment of the specified items. See C.A. App. 200 (testimony of Norman Rich- ter). After the evidentiary hearing, the district court de- nied the government’s petition. App., infra, 89a-118a. As is relevant here, the district court held that the doc- uments at issue were covered by the work-product privi- lege. Jd. at 105a-110a. The district court noted that, al- though courts had “applied * * * different tests in de- termining whether a document was prepared ‘in antici- pation of litigation,’” 7d. at 107a, “the relevant inquiry is whether the document was prepared or obtained ‘be- cause of the prospect of litigation.” /bid. Applying that standard, the court determined that the documents “would not have been prepared at all ‘but for’ the fact that [petitioner] anticipated the possibility of litigation with the IRS.” Jd. at 108a. The court explained that, “lilf [petitioner] had not anticipated a dispute with the IRS, there would have been no reason for it to establish any reserve or to prepare the workpapers used to calcu- late the reserve.” Jbid. The court added that, “even if the workpapers were needed to satisfy [petitioner’s audi- tor] that [petitioner’s] reserves complied with [generally accepted accounting principles], that would not alter the fact that the workpapers were prepared ‘because of an- ticipated litigation with the IRS.” Jd. at 109a.° 4. The government appealed. A divided panel of the court of appeals initially affirmed in relevant part, agree- ing with the district court that the documents at issue were covered by the work-product privilege. App., infra, 47a-88a. After granting the government’s petition for rehearing en banc, however, the court of appeals re- versed by a 3-2 vote. Jd. at la-46a. a. The en banc court of appeals first noted that, un- der Federal Rule of Civil Procedure 26(b)(3), the work- product privilege extends to documents that are “pre- pared in anticipation of litigation or for trial.” App., in- fra, 1la. At the same time, the court reasoned that “how far work product protection extends turns on a balancing of poicy concerns rather than application of abstract log- ic.” Jd. at 9a The court of appeals also observed that “the Supreme Court has not ruled on the issue before us, * The district court determined that the documents at issue were also covered by the attorney-client privilege, App., infra, 99a-102a, but that petitioner had waived that privilege by disclosing the doc- uments to its auditor, id at 110a-112a. Petitioner did not challenge the latter determination on appeal. namely, one in which a document is not in any way pre- pared ‘for’ litigation but relates to a subject that might or might not occasion litigation.” Jbid. Although the court of appeals acknowledged that it had previously suggested that the relevant inquiry was whether the documents were prepared “because of” the prospect of litigation, App., infra, 9a, it ultimately held that the work-product privilege reached only documents that were “prepared for use in possible litigation.” Jd. at lla. In adopting that standard, the court explained that “{i]t is not enough to trigger work product protection that the subject matter of a document relates to a subject that might conceivably be litigated,” zd. at 16a, “(nJor is it enough that the materials were prepared by lawyers or represent legal thinking,” 7d. at 17a. The court added, without elaboration, that “[e]lvery lawyer who tries cases knows the touch and feel of materials prepared for a cur- rent or possible * * * lawsuit.” Ibid. Applying the “for use” standard, the court of appeals determined that the documents at issue were not cov- ered by the work-product privilege, reasoning that “{a]Jny experienced litigator would describe the tax ac- crual work papers as tax documents and not as case preparation materials.” App., infra, 15a. The court noted that one purpose of the documents was to assist petitioner’s auditor in reviewing the amount set aside in reserve for potential tax liabilities in the event of dis- puted, zd. at 1la, and summarily discounted petitioner’s evidence that another purpose was to guide petitioner in making litigation or settlement decisions concerning the tax treatment of the specified items, id. at 14a-15a. The court concluded that “(t]here is no evidence in this case that the work papers were prepared for * * * use [in litigation] or would in fact serve any useful purpose for [petitioner] in conducting litigation if it arose.” Jd. at 18a-19a. In so concluding, the court conceded that “Cojther circuits have not passed on tax audit work pa- pers and some might take a different view.” /d. at 18a. b. Judge Torruella, joined by Judge Lipez, dis- sented. App., infra, 21a-46a. He criticized the majority for “abandon[ing] our ‘because of test”; “ignor[ing] a tome of precedents from the circuit courts”; “brush[ing] aside the actual text of Rule 26(b)(3)”; and “contra- ven{ing| m[any] of the principles underlying the work- product doctrine.” Jd. at 21a-22a. At the outset, Judge Torruella noted that, while the majority had “claim[ed] allegiance” to the court of ap- peals’ earlier decision applying the “because of” stan- dard, App., infra, 22a, the majority in fact adopted a nar- rower standard by concluding that documents must be prepared “for use” in litigation in order to be protected by the work-product privilege. Jd. at 23a. He explained that “no court * * * hasso ruled,” id. at 24a, and that the “for use” standard could not be reconciled either with the “because of” standard applied by the majority of the circuits or even with the narrower standard of the Fifth Circuit, which turns on whether the “primary pur- pose” for which the document was prepared was to assist in future litigation. Jd. at 24a-27a. And as to the majori- ty’s application of the “for use” standard, Judge Torru- ella noted that “[l]lower courts deserve more guidance than a simple reassurance that a bare majority of the en banc court knows work product when it sees it.” Jd. at 27a. Judge Torruella then contended that the majority's “for use” standard was incorrect, primarily because it was inconsistent with the language of Rule 26(b)(3), which protects not only documents prepared “for trial” but also documents prepared “in anticipation of litiga- tion.” App., infra, 28a. He explained that “the term ‘an- 10 ticipation of litigation’ should not be read out of the rule by requiring a showing that documents be prepared for trial.” Jbid. Judge Torruella also contended that this case “squarely implicated” the policy rationales for the work-product privilege articulated in Hickman, because the documents at issue “contain counsel’s ultimate im- pression of the value of the case” and thus “contain ex- actly the sort of mental impressions about the case that Hickman sought to protect.” Jd. at 31a. He added that, ‘Sf attorneys who identify good faith questions and un- certainties in their clients’ tax returns know that putting such information in writing will result in discovery by the IRS, they will be more likely to avoid [doing so], thus diminishing the quality of representation.” Jd. at 32a. And he noted that the majority's approach would have significant ramifications beyond the specific context of this case, because it would allow parties to access docu- ments assessing litigation risks more generally. Jd. at 33a-34a. Judge Torruella next determined that, under the “because of’ standard, the documents at issue in this case would be covered by the work-product privilege. App., 7nfra, 34a-45a. He noted that the district court had found both that “anticipation of litigation was the ‘but for’ cause of the documents’ creation,” id. at 36a, and that the documents were created for a litigation-related purpose as well as a business purpose, id. at 35a-36a. Judge Torruella contended that “(t]he majority ma[de] no effort to reject these factual findings,” id. at 36a, but instead ignored them as irrelevant “without any finding of clear error,” id. at 38a. Because the documents “were not prepared irrespective of the prospect of litigation,” he reasoned, they would be protected under the correct standard. /d. at 43a (internal quotation marks omitted). 11 Judge Torruella concluded that the majority’s deci- sion “throw{s] the law of work-product protection into disarray,” App., infra, 45a, and “will be viewed as a dan- gerous aberration in the law of a well-established and important evidentiary doctrine,” ibid. He added that the majority’s decision “further[s] the split” in the circuits concerning the meaning of Rule 26(b)(3), ibid., and that “(t]he time is ripe for the Supreme Court to intervene and set the circuits straight on this issue which is essen- tial to the daily practice of litigators across the country,” ibid. 5. The court of appeals subsequently granted a stay pending the filing of a petition for certiorari. App., infra, 119a-120a. In so doing, the court of appeals acknowl- edged that “the work product privilege finds its origin in a Supreme Court decision that has not often been revi- sited by the Court,” zd. at 120a, and that “there is some difference in the interpretations adopted in different cir- cuits,” ibid. REASONS FOR GRANTING THE PETITION When measured in terms of its practical significance for civil litigants, this is one of the more important cases to come before the Court in some time. In the decision below, the en banc First Circuit adopted an unpreceden- tedly narrow interpretation of the work-product privi- lege in Federal Rule of Civil Procedure 26(b)(3), holding that the privilege is limited to documents that are pre- pared “for use” in litigation. That holding deepens a preexisting and longstanding circuit conflict: nine other courts of appeals have adopted inconsistent (but un- iformly broader) views of the privilege’s scope. The First Circuit’s analysis, moreover, was deeply flawed, because its “for use” standard cannot be reconciled ei- ther with the language of Rule 26(b)(3) or with the poli- 12 cies underlying the work-product privilege. As the enormous amount of attention that this case has gar- nered reflects, the scope of the privilege is a recurring issue of obvious practical significance, and this case is an optimal vehicle in which to consider the issue. In sum, because this case is a compelling candidate for further review in every respect, certiorari should be granted. A. The Decision Below Deepens A Circuit Conflict Con- cerning The Scope Of The Work-Product Privilege 1. As the First Circuit seemingly recognized, see, e.g., App., infra, 18a, 120a, its decision conflicts with the decisions of nine other courts of appeals concerning the scope of the work-product privilege. That conflict war- rants this Court’s review. a. Eight courts of appeals have held that, for pur- poses of determining whether a document was prepared “in anticipation of litigation” under Rule 26(b)(3), the re- levant inquiry is whether the document was prepared or obtained “because of” the prospect of litigation. See, e.g., In re Sealed Case, 146 F.3d 881, 884 (D.C. Cir. 1998); United States v. Adlman, 134 F.3d 1194, 1202-1203 (2d Cir. 1998); Martin v. Bally’s Park Place Hotel & Casino, 983 F.2d 1252, 1260 (8d Cir. 1993); National Union Fire Ins. Co. v. Murray Sheet Metal Co., 967 F.2d 980, 984 (4th Cir. 1992); United States v. Roxworthy, 457 F.3d 590, 593 (6th Cir. 2006); Binks Mfg. Co. v. National Pres- to Indus., Inc., T09 F.2d 1109, 1118-1119 (7th Cir. 1983); Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir.), cert. denied, 484 U.S. 917 (1987); In re Grand Jury Sub- poena, 357 F.3d 900, 907 (9th Cir. 2004). That standard appears to have originated in the leading treatise on civil procedure, which states that, for purposes of the “in an- ticipation of litigation” requirement, “the test should be whether, in light of the nature of the document and the 13 factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.” 8 Charles Alan Wright, Ar- thur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 2024, at 348 (2d ed. 1994) (Wright & Miller). In applying the “because of” standard, courts of ap- peals have focused on whether the document at issue would not have been prepared but for the prospect of lit- igation—or whether the document was prepared for a litigation-related purpose, even if it was prepared for another purpose as well. For example, in Adlman— perhaps the most influential lower-court decision on the scope of the work-product privilege—the Second Circuit held that the privilege covered a document that, inter alia, made “predictions about the likely outcome of liti- gation” with the IRS that could result from a company’s planned merger. 134 F.3d at 1195. The court concluded that, “[w]here a document was created because of antic- ipated litigation, and would not have been prepared in substantially similar form but for the prospect of that litigation, it falls within Rule 26(b)(3).” bid. In so con- cluding, the court determined that “(t]he fact that [the] document’s purpose [was] business-related”—viz., to as- sist the company in deciding whether to proceed with the merger in the first place—“appears irrelevant to the question whether it should be protected under Rule 26(b)(3).” Id. at 1200. Similarly, in Grand Jury Subpoena, the Ninth Cir- cuit held that the work-product privilege extended to documents that were created not only to assess a compa- ny’s potential liability, but also to comply with certain regulatory requirements. 357 F.3d at 909-910. In adopt- ing the “because of” standard, the court explained that the standard “does not consider whether litigation was a 14 primary or secondary motive behind the creation of a document,” but rather “affords protection” when the document “would not have been created in substantially similar form but for the prospect of that litigation.” Jd. at 908 (quoting Ad/man, 134 F.3d at 1195). And in Sealed Case, the District of Columbia Circuit held that certain documents could be privileged despite the fact that no “specific claim” had arisen at the time the documents were prepared. 146 F.3d at 882. In the course of doing so, the court reaffirmed its adoption of the “because of” standard, reiterating that “the ‘testing question’ for the work-product privilege” is whether a document “can fairly be said to have been prepared or obtained because of the prospect of litigation.” Jd. at 884 (internal quotation marks omitted) (quoting Senate of the Commonwealth of Puerto Rico ex rel. Judiciary Com- mittee v. United States Dep't of Justice, 823 F.2d 574, 586 n.42 (D.C. Cir. 1987) (R.B. Ginsburg, J.)). The court noted that lawyers often prepared documents “prior to the emergence of specific claims,” such as when lawyers “consider whether business decisions might result in an- titrust or securities lawsuits” or “assess the possibility that new products might give rise to tort actions.” Jd. at 886. The court reasoned that, if the work-product privi- lege were not available in those situations, lawyers “would not likely risk taking notes about such matters or communicating in writing with colleagues, thus severely limiting their ability to advise clients effectively.” Jbid. b. Even before the First Circuit’s decision in this case, there was a longstanding circuit conflict between the foregoing circuits and the Fifth Circuit, which has repeatedly held that, for purposes of determining wheth- er a document was prepared “in anticipation of litiga- tion” under Rule 26(b)(3), the relevant inquiry is whether the “primary motivating purpose” for which the docu- 15 ment was prepared was to assist in litigation. United States v. Davis, 636 F.2d 1028, 1040 (5th Cir. Unit A Feb. 1981), cert. denied, 454 U.S. 862 (1981). Perhaps most significantly, in United States v. El Paso Co., 682 F.2d 530 (1982), cert. denied, 466 U.S. 944 (1984), the Fifth Circuit held that the work-product privilege did not cov- er workpapers like those at issue in this case, on the ground that, even though the workpapers “forecast{] the ultimate likelihood of sustaining [the company’s] position in court,” the “primary motivating force” behind their preparation was “not to ready [the company] for litiga- tion over its tax returns,” but rather “to anticipate, for financial reporting purposes, what the impact of litiga- tion might be on the company’s tax liability.” 682 F.2d at 543. Notably, in adopting the “because of” standard, nu- merous courts have expressly rejected the Fifth Circuit’s more stringent “primary purpose” standard. See, e.g., Adlman, 134 F.3d at 1198-1199 (noting, after citing Da- vis and El Paso, that “a requirement that documents be produced primarily or exclusively to assist in litigation in order to be protected is at odds with the text and the pol- icies of [Rule 26(b)(3)]”). Commentators have criticized the Fifth Circuit’s standard as well. See, e.g., Claudine Pease-Wingenter, Prophetic or Misguided? The Fifth Circuit’s (Increasingly) Unpopular Approach to the Work Product Doctrine, 29 Rev. Litig. 121, 161 (2009) (contending that “[t]he Fifth Circuit’s ‘primary purpose’ test is clearly at odds with the plain meaning of the text of Rule 26(b)(3) and undercuts the policy goals of the work product doctrine”). In the face of mounting criti- cism, however, the Fifth Circuit has adhered to its stan- dard. See, e.g., In re Kaiser Aluminum & Chem. Co., —" o> 214 F.3d 586, 593 (2000), cert. denied, 532 U.S. 919 (2001).* c. Although a panel of the First Circuit had pre- viously suggested that it would follow the prevailing “be- cause of” standard, see Maine v. United States Dep't of Interior, 298 F.3d 60, 68 (2002), the en bane First Circuit took a different approach in this case and held that, for purposes of determining whether a document was pre- pared “in anticipation of litigation” under Rule 26(b)(3), the relevant inquiry was whether the documents were “prepared for use in possible litigation.” App., infra, lla. While the First Circuit at one point purported to reaffirm its earlier decision in Maine, id. at 9a, it did not otherwise refer to the “because of” standard (on which the district court and the court of appeals panel had re- lied, see, e.g., id. at 55a-57a, 107a-108a), but instead re- peatedly reiterated the novel requirement that a docu- ment must possess a litigation-related wse in order to be protected. See, ¢.g., id. at 14a (“could be useful” in litiga- tion); id. at 15a (“prepared for use in litigation”); id. at 18a (“prepared for potential use in litigation”). And in applying that standard to the facts of this case, the court concluded that “[t]here is no evidence in this case that * The remaining three circuits—the Tenth, Eleventh, and Federal Circuits—have not addressed the issue. A district court recently predicted that the Eleventh Circuit would “align itself with the ma- jority of the other courts of appeal[s] and adopt the ‘because of liti- gation’ test.” Regions Fin. Corp. v. United States, No. 06-895, 2008 WL 2139008, at *5 (N.D. Ala. May 8, 2008), appeal dismissed, No. 08-13866 (11th Cir. Dec. 30, 2008). By contrast, several district courts in the Tenth Circuit have adupted the Fifth Circuit’s “prima- ry purpose” standard. See, eg., United States Fire Ins. Co. v. Bunge North America, Inc., 247 F.R.D. 656, 658-659 (D. Kan. 2007); McEwen v. Digitran Sys., Inc., 155 F.R.D. 678, 682 (D. Utah 1994); Gottlieb v. Wiles, 143 F.R.D, 241, 253 (D. Colo. 1992). 17 the work papers were prepared for * * * use [in liti- gation] or would in fact serve any useful purpose for [pe- titioner] in conducting litigation if it arose.” /d. at 18a- 19a. As the dissent below explained, the First Circuit thus adopted a standard that is narrower than either the “because of” standard applied by eight other circuits or the “primary purpose” standard applied by the Fifth Circuit, neither of which requires a litigation-related use. See id. at 23a-27a (opinion of Torruella, J.). The First Circuit thereby deepened a circuit conflict that merits this Court’s review.” 2. This case constitutes an ideal vehicle for the Court to resolve the well-entrenched circuit conflict con- cerning the scope of the work-product privilege, because the choice of the appropriate standard would plainly be dispositive of whether the privilege covers the docu- ments at issue here. a. As the district court and the court of appeals pan- el correctly determined, the documents at issue would be covered under the “because of” standard. See App., in- fra, 55a-74a (court of appeals panel); id. at 105a-110a (district court). To begin with, as the district court ® In addition, numerous States have rules codifying the work- product privilege in materially identical terms to Federal Rule 26(b)(3), and many state courts of last resort (including courts within the First Circuit) have applied the “because of” standard in deter- mining whether a document was prepared “in anticipation of litiga- tion” under the applicable state rule. See, eg., Commissioner of Revenue v. Comcast Corp., 901 N.E.2d 1185, 1203-1204 (Mass. 2009); Springfield Terminal Ry. Co. v. Department of Transp., 764 A.2d 358, 357-358 (Me. 2000); Henderson v. Newport County Regional YMCA, 966 A.2d 1242, 1247 (R.I. 2009). In many cases, therefore, the practical effect of the decision below will be to render the availa- bility of the work-product privilege in the First Circuit dependent on whether the case is being litigated in federal or state court. 18 found, “it is clear” that the documents “would not have been prepared at all ‘but for’” the prospect of litigation with the IRS concerning the specified items from peti- tioner’s tax return. Jd. at 108a; see, e.g., Adlman, 134 F.3d at 1195. That is true for the simple reason that, “{ilf [petitioner] had not anticipated a dispute with the IRS, there would have been no reason for it to establish any reserve or to prepare the workpapers used to calcu- late the reserve.” App., infra, 108a. Petitioner, more- over, presented ample evidence that there was a reason- able prospect of litigation with the IRS: all but one of its eight previous audits had resulted in at least some form of adversarial proceedings, with three resulting in litiga- tion in federal court (including one proceeding that was still ongoing at the time the documents at issue were be- ing prepared). See id. at 109a; Textron Inc. v. Commis- sioner, 336 F.3d 26, 28-30 (1st Cir. 2003). In addition, to the extent that courts applying the “because of” standard have focused more specifically on whether the documents at issue were prepared for a liti- gation-related purpose (even if they were prepared for another purpose as well), see, e.g., Roxworthy, 457 F.3d at 598-599; Grand Jury Subpoena, 357 F.3d at 907-908, it is clear that the “because of” standard would still be sa- tisfied, because petitioner presented uncontroverted tes- timony to the district court that the documents were prepared not simply to assist petitioner’s auditor in re- viewing che amount set aside in reserve for potential tax liabilities, but also to guide petitioner in making litigation or settlement decisions concerning the tax treatment of the specified items. See C.A. App. 200. Although the en bane majority appeared to discount that testimony in applying its “for use” standard, see App., infra, 14a, the district court seemingly credited it in reaching a con- trary result under the “because of” standard, see, e.g., 2d. 19 at 93a-94a, and the government did not challenge the credibility of that testimony on appeal, see Gov't C.A. Br. 52 n.16. In sum, because the documents at issue would not have been prepared but for the prospect of litigation and were in fact prepared for a litigation-related pur- pose, they would be covered under the “because of” standard. b. Lower-court decisions applying the “because of” standard confirm that conclusion. At least one district court has extended work-product protection to similar decuments under the “because of” standard, reasoning that, “[wJere it not for anticipated litigation, [the compa- ny] would not have to worry about contingent liabilities and would have no need to elicit opinions regarding the likely results of litigation.” Regions Fin. Corp. v. United States, No. 06-895, 2008 WL 2139008, at *5-*6 (N.D. Ala. May 8, 2008), appeal dismissed, No. 08-13866 (11th Cir. Dec. 30, 2008). And although no court of appeals apply- ing the “because of” standard has specifically considered documents provided to a company’s auditor for the pur- pose of reviewing the amount set aside in reserve for po- tential tax liabilities, courts of appeals applying that standard have suggested that the privilege would reach documents that assess potential tax liabilities, see, e.9., Roxworthy, 457 F.3d at 592; Adlman, 134 F.3d at 1196," and documents provided to a company’s auditor for the purpose of reviewing the amount set aside for potential litigation liabilities more generally, see, ¢.g., Adlman, 134 F.3d at 1200. Because the documents at issue here do not meaningfully differ from the documents discussed * The government contended below that the Sixth Circuit’s deci- sion in Roxworthy was “incorrect{].” Gov't C.A. Reply Br. 48 n.19. 20 in those cases, they would surely be covered under the “because of” standard applied by the majority of circuits. By contrast, the only lower courts to hold that docu- ments of the type at issue here would not be subject to the work-product privilege are the en banc First Circuit, applying its newly minted “for use” standard, and the Fifth Circuit, applying its distinct “primary purpose” standard. See El Paso, 682 F.2d at 542-544. The choice of the appropriate standard would therefore be disposi- tive of whether the documents at issue are covered by the privilege—and, for that reason, this case constitutes a suitable vehicle for resolution of the circuit conflict on the privilege’s scope. B. The Court Of Appeals’ Decision Is Erroneous The en banc First Circuit erred in holding that the work-product privilege in Federal Rule of Civil Proce- dure 26(b)(3) is limited to documents that are prepared for use in litigation. 1. Most importantly, the First Circuit’s novel “for use” standard cannot be reconciled with the plain lan- guage of Rule 26(b)(8). By its terms, that provision reaches not only documents prepared “for trial,” but also documents prepared “in anticipation of litigation”: we., documents prepared “in contemplation of litigation.” Senate of the Commonwealth of Puerto Rico, 823 F.2d at 586 (emphasis added) (quoting NLRB v. Sears, Roebuck & Co., 421 U.S. 182, 154 (1975)). The First Circuit’s standard, however, seemingly writes the “broader cate- gory” of documents prepared “in anticipation of litiga- tion” out of the rule altogether, because a document that is prepared for use in litigation would presumably always qualify as a document prepared “for trial.” Ad/man, 134 F.3d at 1198; see zbid. (noting that, “[i]f the drafters of the Rule intended to limit its protection to documents 21 made to assist in preparation for litigation, this would have been adequately conveyed by the phrase ‘prepared * * * for trial’”) (second alteration in original). The First Circuit’s interpretation would therefore apparently contravene the familiar canon of construction that a court should “give effect, if possible, to every word [the provision] used.” Carcieri v. Salazar, 129 S. Ct. 1058, 1066 (2009) (citation omitted). And even if some inde- pendent meaning could be attributed to the phrase “in anticipation of litigation,” the First Circuit’s “for use” standard would at best engraft a substantial limitation on the scope of the work-product privilege that is no- where to be found in the language of Rule 26(b)(3)—as the en banc majority implicitly acknowledged. See App., infra, 16a; Adiman, 134 F.3d at 1198 (noting that “[n]o- where does Rule 26(b)(3) state that a document must have been prepared to aid in the conduct of litigation in order to constitute work product”).’ 7 In adopting the “for use” standard, the First Circuit cited two of this Court’s decisions, neither of which is apposite. The First Cir- cuit first quoted FTC v. Grolier, Inc., 462 U.S. 19 (1983), for the proposition that “the literal language of [Rule 26(b)(3)] protects ma- terials prepared for any litigation or trial as long as they were pre- pared by or for a party to the subsequent litigation.” App., infra, 16a (emphasis in First Circuit’s opinion) (quoting Grolier, 462 U.S. at 25). In Grolier, however, the Court was addressing only the dis- crete question whether the work-product privilege “extended beyond the litigation for which the documents at issue were pre- pared,” 462 U.S. at 24—as the original emphasis in the Court’s opi- nion makes clear. See zd. at 25 (stating that “the literal language of [Rule 26(b)(3)) protects materials prepared for any litigation or trial as long as they were prepared by or for a party to the subsequent litigation”). The First Circuit also cited Sears. App., infra, 17a. That opinion, however, stands only for the proposition that docu- ments prepared “in contemplation of” litigation “fall squarely” with the definition of protected work product—a proposition that is more 22 2. The First Cireuit’s standard is irreconcilable not only with the language of Rule 26(b)(3), but also with the policies animating the work-product privilege. In first recognizing the privilege in Hickman, this Court ex- plained that the privilege was necessary because “it is essential that a lawyer work with a certain degree of pri- vacy, free from unnecessary intrusion by opposing par- ties and their counsel.” 329 U.S. at 510. And the Court expressed a particular solicitude for an attorney’s “thoughts,” “mental impressions,” and “personal be- liefs,” which, the Court noted, had previously been viewed as “inviolate.” Jd. at 511, 512. Notwithstanding the government’s contention that the work-product privi- lege “hamper [s] the search for the truth,” Gov't C.A. Re- ply Br. 4, this Court has repeatedly reaffirmed the “strong public polic[ies]” underlying the privilege, e.g., United States v. Nobles, 422 U.S. 225, 236 (1975) (inter- nal quotation marks omitted), and those policies were “substantially incorporated” in Rule 26(b)(3), Upjohn Co. v. United States, 449 U.S. 383, 398 (1981). The First Circuit’s standard would strip protection from documents embodying an attorney’s opinion as to the “likelihood of success in litigation,” Adlman, 134 F.3d at 1200—documents that most directly implicate the policies underlying the work-product privilege (and therefore lie at the “core” of the privilege). See Nobles, 422 U.S. at 238; ef. Hickman, 329 U.S. at 516 (Jackson, J., concurring) (explaining that “[dJiscovery was hardly intended to enable a learned profession to perform its functions * * * on wits borrowed from the adver- consistent with other circuits’ “because of” standard than with the First Circuit’s “for use” standard. See p. 20, supra. 23 sary”). If such documents are not covered by the privi- lege, it would have a chilling effect on lawyers, who would be loath to commit their opinions to paper if the resulting documents were “open{] to the free scrutiny” of the IRS and other litigants. Hickman, 329 U.S. at 514. An approach that permitted discovery of such documents would therefore lead to the “inefficiency” of which Hickman warned, with the result that “the legal profes- sion would be demoraliz[ed}” and “the interests of the clients and the cause of justice * * * poorly served.” Id. at 511. 3. In support of its “for use” standard, the First Cir- cuit cited an advisory committee note to Rule 26(b)(3), which indicates that “[mJaterials assembled in the ordi- nary course of business, or pursuant to public require- ments unrelated to litigation, or for other nonlitigation purposes” are not protected by the privilege. Fed. R. Civ. P. 26(b)(3) advisory committee’s note (1970). That note, however, speaks only to situations in which a doc- ument has only a non-litigation-related purpose—not, as here, a non-litigation-related purpose and a litigation- related purpose as well. See, e.g., 8 Wright & Miller § 2024, at 346 (citing the advisory committee note for the proposition that, “even though litigation is already in prospect, there is no work-product immunity for docu- ments prepared in the regular course of business rather than for purposes of litigation”) (emphasis added); id. at 198 (Supp. 2009) (adding that “‘{djual purpose’ docu- ® Indeed, the government has not disputed in this case that, if the documents at issue are subject to the privilege in the first place, they would qualify as “opinion work product” and would therefore be protected from disclosure even upon a showing of substantial necessity. See Fed. R. Civ. P. 26(b)(3)(B). 24 ments created because of the prospect of litigation are protected even though they were also prepared for a business purpose”). As the dissent below noted, a con- trary understanding of the advisory committee note would create an atextual exception to Rule 26(b)(8), by excluding documents that would otherwise fall within the scope of the rule whenever the documents possessed an additional purpose beyond a litigation-related purpose. See App., infra, 42a-43a (opinion of Torruella, J.).° In sum, there is no valid justification for the First Circuit’s novel limitation on the scope of the work- product privilege. This Court should grant review in or- der to eliminate the circuit conflict and correct the First Circuit’s seriously flawed approach. ® Before the First Circuit, the government argued that the docu- ments at issue should not be covered by the work-product privilege because petitioner was legally required to generate them. See Gov't C.A. Supp. Br. 24. The First Circuit did not rely on that argument, and for good reason. That is because, at most, the law “requires that [petitioner] prepare audited financial statements reporting total reserves based on contingent tax liabilities” and does not “require the form and detail of the documents prepared here.” App., infra, 32a (Torruella, J., dissenting). To be sure, petitioner prepared the documents for the purpose, inter alia, of assisting petitioner’s audi- tor in reviewing the amount set aside in reserve for potential tax liabilities (and thus in performing its obligation to review petition- er’s financial statements for compliance with generally accepted ac- counting principles). The salient point, however, is that, but for the prospect of litigation with the IRS, petitioner would not have needed to prepare the documents at all. See, e.g., C.A. App. 200 (testimony of Norman Richter) (explaining that, if petitioner had not antic- ipated litigation with the IRS, the documents “would be blank” and “[w]e would have nothing there”). 25 C. The Question Presented Is An Exceptionally Impor- tant And Recurring One That Merits The Court’s Re- view In This Case Finally, the question presented in this case is an ex- ceptionally important one because it concerns the scope of the work-product privilege—an issue that is “essential to the daily practice of litigators across the country.” App., infra, 45a (Torruella, J., dissenting). If the First Circuit’s unprecedented interpretation of the work- product privilege is allowed to stand, it will have pro- found consequences for civil litigants in a variety of dif- ferent contexts. 1. As a preliminary matter, the factual context in which this case arises—ze., whether the work-product privilege extends to documents assessing risks in tax lit- igation for the purpose, inter alia, of assisting a compa- ny’s auditor in reviewing the amount set aside in re- serve—is important in its own right. Because of the size and complexity of their operations, publicly held compa- nies inevitably find themselves taking positions on their tax returns that fall into “gray areas” as to which there is legal uncertainty (because the relevant statutory or reg- ulatory language is unclear and the IRS has provided no guidance on point). For that reason, virtually all publicly held companies generate so-called “tax accrual workpa- pers” in some form. If a company is required to disclose such documents to the IRS, it will give the IRS a “blue- print” to the company’s thinking in preparing its tax re- turn (as the en banc majority acknowledged, see App., infra, 20a); indeed, the IRS has freely admitted that it sought the documents at issue here for that reason. See pp. 5-6, swpra. But that kind of disclosure would contra- vene the fundamental principle, established in Hickman, that a party is not entitled to an opposing attorney’s “as- sessment of * * * legal vulnerabilities in order to 26 make sure it does not miss anything in crafting its legal case.” Delaney, Migdail & Young, Chartered v. IRS, 826 F.2d 124, 127 (D.C. Cir. 1987). Not surprisingly, the decision below has already em- boldened the IRS—which, before 2002, had only rarely sought workpapers from taxpayers, see C.A. App. 238; United States v. Arthur Young & Co., 465 U.S. 805, 820- 821 (1984)—to declare that it will aggressively pursue such workpapers in future. See Kim Dixon, U.S. IRS Could Seek More in Company Audits—Official, Reu- ters, Nov. 19, 2009 (quoting comments by William Wil- kins, IRS Chief Counsel). And because disclosure to an adverse party waives the work-product privilege, see 8 Wright & Miller § 2024, at 369, a company that is re- quired to disclose its workpapers to the IRS will likely be obligated to turn over those workpapers to state taxation authorities (even if a state court would construe the pri- vilege more broadly, see p. 17, n.5, swpra) and even to private litigants, thereby compounding the consequences of the First Circuit’s approach. 2. The practical significance of the First Circuit’s approach, however, sweeps far beyond the particular context of this case. The First Circuit’s “for use” stan- dard is in no way cabined to that context—nor could it iogically be, as the government seemingly recognized at oral argument below. See C.A. En Banc Tr. 4-5, 16 Tronically, in Delaney, the IRS argued that the work-product privilege covered documents it had prepared to analyze the legal vulnerability of a particular auditing method, and the District of Co- lumbia Circuit agreed. See 826 F.2d at 126-128; cf. C_A. Panel Tr. 20 (Sept. 5, 2008) (stating that the government “spend[s] a lot more time defending our documents from requests on the grounds of work product than we do * * * seek[{ing] them [from other par- ties]”). 27 (June 2, 2009) (conceding that the “work product test” adopted by the court “will apply” both “to the IRS” and “to everyone else,” including “outside the tax realm”). Under the First Circuit’s standard, work-product protection would no longer extend to any documents prepared by counsel that assess the risks of ongoing or potential litigation, because such documents could not meaningfully be said to have been prepared “for use” in litigation. For example, the work-product privilege would not cover a document that a company prepares in order to inform a potential merger partner of the litiga- tion risks that the company faces—risks that the partner would assume in the event the merger is consummated. See, e.g., Adlman, 134 F.3d at 1195. Nor would it cover so-called “audit response letters”: that is, letters rou- tinely prepared by outside counsel at their corporate clients’ request assessing pending or threatened litiga- tion against the company for the purpose of assisting the company’s auditor in performing its duties. See, e.g., Lawrence E. Jaffe Pension Plan v. Household Int'l, Inc., 237 F.R.D. 176, 179-181 (N.D. Ill. 2006) (holding that work-product privilege covers audit response letters); Jn re Honeyweii Int'l, Inc., Sec. Litig., 230 F.R.D. 298, 300 (S.D.N.Y. 2068) (same); Tronitech, Inc. v. NCR Corp., 108 F.R.D. 655, 656 (S.D. Ind. 1985) (same)."’ In those and other similar contexts, the documents at issue con- tain information that would be enormously valuable to adverse parties in litigation, and the work-product privi- lege would provide the only potential source of protec- "' The government conceded below that, if the documents at issue in this case were not protected by the work-product privilege, audit response letters would not be protected either. See C.A. En Banc Tr. 19 (June 2, 2009). 28 tion against disclosure (because the attorney-client privi- lege is waived by disclosure to any third party, even a potential merger partner or auditor). See 8 Wright & Miller § 2024, at 367-368.” Perhaps for that reason, the First Circuit’s decision has received an enormous amount of attention from the news media and commentators—and, belying the First Circuit’s belief that “[n]o one with experience of law suits” would reach a contrary conclusion, App., infra, 17a, the decision has also been greeted with widespread consternation by practitioners. See, e.g., Nancy T. Bo- wen, William S. Lee & Robert C. Morris, Newly Minted ‘For Use in Possible Litigation’ Test of ‘Textron’ May Have Far-Reaching Implications for Companies, 78 U.S.L.W. 2199, 2199 (2009) (stating that the decision be- low is “highly controversial”; “may have far-reaching implications, particularly for publicly traded companies”; and “adds further uncertainty to [an] already confused legal arena”); Amir Efrati, Ruling in Tax-Auditing Case Puts Corporations on Edge, Wall St. J., Aug. 20, 2009, at A9 (suggesting that the decision below “is causing law- yers for big companies some sleepless nights” and has been seen as “signal{ing] an attack by the courts on the ‘work-product doctrine’”); Michelle M. Henkel, ‘T'extron’ Eviscerates the 60-Year-Old Work Product Privilege, 125 Tax Notes 237, 237 (2009) (contending that, “[ble- cause of the widespread impact of [the decision below], In fact, relying on the decision below, the Director of the SEC’s Division of Enforcement recently made the unqualified assertion that “audit documentation * * * relied on by an auditor in con- nection with an audit report” is not covered by the work-product privilege. See Robert Khuzami, Remarks at AICPA National Con- ference on Current SEC and PCAOB Developments (Dec. 8, 2009) . 29 the entire legal profession and all corporations should be in a state of disbelief”). In addition, in the wake of the First Circuit’s deci- sion, practitioners have already begun recommending that companies take steps to avoid the disclosure to ad- verse parties of their litigation risk assessments. See, e.g., Scott Novick, What In-House Tax Professionals Should Do in Light of ‘Textron,’ Global Tax Blog (Aug. 31, 2009) (contending that “tax departments can and should * * * [l}imit[{] tax accrual work papers to numerical analysis with minimal supporting narrative”); Robert W. Pommer III, First Circuit Reverses Course in Closely Watched Work Product Case; Establishes Broad New Standard That Could Extend Outside Tax Area, 41 Sec. Reg. & Law Report 2050, 2053 (2009) (recommending that companies “exercise greater caution when sharing documents with the[ir] outside auditors”); cf. Stuart J. Bassin, Managing Tax Accrual Workpapers After ‘Textron,’ 123 Tax Notes 571, 580 (2009) (suggesting, while this case was still pending below, that the drafters of workpapers “should choose their words carefully”). Those recommendations amply support the prediction that the First Circuit’s de- cision will have a broad chilling effect if it is allowed to stand. 3. Although issues concerning the applicability of the work-product privilege arise in courts around the Nation on a daily basis, this Court has not directly ad- dressed the scope of the privilege since its decision more than sixty years ago in Hickman. See App., infra, 120a.° But notwithstanding the frequent recurrence in % In Arthur Young, the Court refused to recognize an “accoun- tant work-product privilege” for workpapers generated by a compa- 30 lower courts of issues concerning the privilege, if the Court does not grant review in this case, it is far from clear when the Court will have the opportunity to do so again. In ordinary civil litigation, a party that wishes to appeal a determination that a document is not covered by the work-product privilege may not be able to do so immediately, cf. Mohawk Indus., Inc. v. Carpenter, No. 08-678 (Dec. 8, 2009), slip op. 9-10 (explaining options for appeal of denial of attorney-client privilege), and, even if it can, the party will have to bear the expense of litigat- ing what is an inherently collateral issue all the way to this Court. At all events, there is simply no reason for the Court to wait to address the scope of the work-product privi- lege. Ten circuits have now spoken on the issue, taking three different (and irreconcilable) positions on the privi- lege’s scope. This case, moreover, is an optimal vehicle for consideration of that issue. As the dissent below ob- served, “[t]he time is ripe for the Supreme Court to in- tervene and set the circuits straight.” App., infra, 45a (opinion of Torruella, J.). The Court should grant review in this extraordinarily important case and correct the First Circuit’s excessively narrow interpretation of the work-product privilege. ny’s auditor. See 465 U.S. at 815-821. In some respects, this case presents the flipside of the issue in Arthur Young, because it in- volves workpapers generated by the company’s own lawyers. 3] CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. JOHN A. TARANTINO PATRICIA K. ROCHA NICOLE J. DULUDE ADLER POLLOCK & SHEEHAN P.C, One Citizens Plaza, 8th Floor Providence, RI 029038 DECEMBER 2009 KANNON K. SHANMUGAM ANNA-ROSE MATHIESON GEORGE W. HICKS, JR. SARAH F’. TEICH ALLISON B, JONES WILLIAMS & CONNOLLY LLP 725 Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 APPENDIX APPENDIX A UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT No. 07-2631 UNITED STATES OF AMERICA, Petitioner, Appellant, v. TEXTRON INC. AND SUBSIDIARIES, Respondent, Appellee. August 13, 2009 Before: LYNCH, Chief Judge, TORRUELLA, BOUDIN, LIPEZ and HOWARD, Circuit Judges. BOUDIN, Circuit Judge. The question for the en banc court is whether the at- torney work product doctrine shields from an IRS sum- mons “tax accrual work papers” prepared by lawyers and others in Textron’s Tax Department to support Tex- tron’s calculation of tax reserves for its audited corpo- rate financial statements. Textron is a major aerospace and defense conglomerate, with well over a hundred sub- sidiaries, whose consolidated tax return is audited by the IRS on a regular basis. To understand the dispute, some (la) 2a background is required concerning financial statements, contingent tax reserves and tax audit work papers. As a publicly traded corporation, Textron is required by federal securities law to have public financial state- ments certified by an independent auditor. See 15 U.S.C. §§ 781, 78m (2006); 17 C.F.R. § 210 et seg. (2009). To pre- pare such financial statements, Textron must calculate reserves to be entered on the company books to account for contingent tax liabilities. Such liabilities, which affect the portrayal of assets and earnings, include estimates of potential liability if the IRS decides to challenge debata- ble positions taken by the taxpayer in its return. The calculation of such reserves entails preparing work papers describing Textron’s potential liabilities for further taxes; these underpin the tax reserve entries in its financial statement and explain the figures chosen to the independent auditor who certifies that statement as correct. By examining the work papers the accountant discharges its own duty to determine “the adequacy and reasonableness of the corporation’s reserve account for contingent tax liabilities.” United States v. Arthur Young & Co., 465 U.S. 805, 812 (1984) (rejecting claim of accountant work product privilege protecting such work papers).' The work papers are thus one step in a process whose outcome is a certified financial statement for the company. The procedural requirement that auditors examine tax accrual work papers is based on a combination of Statement on Auditing Standards No. 96, Audit Documentation (2002), superseded by Au- diting Standards No. 3, Audit Documentation (2004); Statement on Auditing Standards No. 326, Evidential Matter (1980); and Auditing Interpretation No. 9326, Evidential Matter: Auditing Interpreta- tions of Section 326 (2003). 3a In Textron’s case, its Tax Department lists items in the tax return that, if identified and challenged by the IRS, could result in additional taxes being assessed. The final spreadsheets list each debatable item, including in. each instance the dollar amount subject to possible dis- pute and a percentage estimate of the IRS’ chances of success. Multiplying the amount by the percentage fixes the reserve entered on the books for that item. The spreadsheets reflecting these calculations may be sup- ported by backup emails or notes. A company’s published financial statements do not normally identify the specific tax items on the return that may be debatable but incorporate or reflect only the total reserve figure. As the Supreme Court explained in Arthur Young, tax accrual work papers provide a re- source for the IRS, if the IRS can get access to them, by “pinpoint[ing] the ‘soft spots’ on a corporation’s tax re- turn by highlighting those areas in which the corporate taxpayer has taken a position that may, at some later date, require the payment of additional taxes” and pro- viding “an item-by-item analysis of the corporation’s po- tential exposure to additional liability.” 465 U.S. at 813. The IRS does not automatically request tax accrual work papers from taxpayers; rather, in the wake of Enron and other corporate scandals, the IRS began to seek companies’ tax accrual work papers only where it concluded that the taxpayer had engaged in certain listed transactions “that [are] the same as or substantial- ly similar to one of the types of transactions that the {IRS] has determined to be a tax avoidance transaction.” 4a 26 C.F.R. § 1.6011-4(b)(2) (2009). Only a limited number of transactions are so designated.” The present case began with a 2003 IRS audit of Tex- tron’s corporate income tax liability for the years 1998- 2001. In reviewing Textron’s 2001 return, the IRS de- termined that a Textron subsidiary—Textron Financial Corp. (“Textron Financial”)—had engaged in nine listed transactions. In each of the nine instances, Textron Fi- nancial had purchased equipment from a foreign utility or transit operator and leased it back to the seller on the same day. Although such transactions can be legitimate, the IRS determined that they were sale-in, lease-out (“SILO”) transactions, which are listed as a potential tax shelter subject to abuse by taxpayers. SILOs allow tax-exempt or tax-indifferent organiza- tions—for example, a tax-exempt charity or a city-owned transit authority—to transfer depreciation and interest deductions, from which they cannct benefit, to other tax- payers who use them to shelter income from tax. Where the only motive of a sale and lease back is tax avoidance, it can be disregarded by the IRS and taxes assessed on the wrongly sheltered income.® 2 A current list of such transaction types, amounting to less than three dozen, appears at Internal Revenue Service, Recognized Ab- usive and Listed Transactions-LMSB Tier I Issues, http:/Avww.irs. gov/businesses/corporations/article/0,id=120633,00.htm] (visited July 7, 2009). * See AWG Leasing Trust v. United States, 592 F. Supp. 2d 953, 958 (N.D. Ohio 2008) (upholding denial of depreciation and interest deductions for SILO transaction); I.R.S. Notice 2005-13, 2005-9 I.R.B. 630 (Feb. 11, 2005); Shvedov, Tax Implications of SILOs, QTEs, and Other Leasing Transactions with Tax-Exempt Entities 10-12, CRS Report for Congress (Nov. 30, 2004). 5a Textron had shown the spreadsheets to its outside accountant, Ernst & Young, but refused to show them to the IRS. The IRS issued an administrative summons pursuant to 26 U.S.C. § 7602 (2006), which allows the IRS, in determining the accuracy of any return, to “ex- amine any books, papers, records, or other data which may be relevant or material to ‘such inquiry.” /d. § 7602(a)(1). According to IRS policy, where the taxpay- er claims benefits from only a single listed transaction, the IRS seeks only the workpapers for that transaction; but where (as in Textron’s case) the taxpayer claims benefits from multiple listed transactions, the IRS seeks all of the workpapers for the tax year in question. I.R.S. Announcement 2002-63, 2002-27 I.R.B. 72 (July 8, 2002). The summons also sought related work papers created by Ernst & Young in determining the adequacy of Tex- tron’s reserves that Textron might possess or could ob- tain. Textron again refused. The IRS brought an enforcement action in federal district court in Rhode Island. See 26 U.S.C. § 7604(a) (2006). Textron challenged the summons as lacking legi- timate purpose and also asserted, as bars to the demand, the attorney-client and tax practitioner privileges and the qualified privilege available for litigation materials under the work product doctrine. The IRS contested all of the privilege claims. Both the IRS and Textron filed affidavits and, in addition, the district court heard wit- nesses from both sides.‘ * Textron’s evidence came from Norman Richter, chief tax coun- sel and manager of Textron’s Tax Department; Roxanne Cassidy, director of tax reporting; Edward Andrews, director of tax audits; Debra Raymond, vice president, taxes, of Textron Financial; and Mark Weston, a partner in Ernst & Young. IRS evidence was pro- vided by Internal Revenve Agent Edward Vasconcellos; Professor 6a Textron agreed that it usually settled disputes with the IRS through negotiation or concession or at worst through the formal IRS administrative process; but it testified that sometimes it had litigated disputed tax is- sues in federal court. Its evidence also showed that the estimates for tax reserves and the supporting work pa- pers were generated within its Tax Department but that tax lawyers in that department were centrally involved in their preparation and that Textron Financial also used an outside counsel to advise it on tax reserve require- ments. Textron described generically the contents of the work papers in question: these included (1) summary spreadsheets showing for each disputable item the amount in controversy, estimated probability of a suc- cessful challenge by the IRS, and resulting reserve amounts; and (2) back up e-mail and notes. In some in- stances the spreadsheet entries estimated the probabili- ty of IRS success at 100 percent. Textron said that the spreadsheets had been shown to and discussed with its independent auditor but physically retained by Textron. Neither side disputed that the immediate purpose of the work papers was to establish and support the tax re- serve figures for the audited financial statements. Tex- tron’s evidence was to the effect that litigation over spe- cific items was always a possibility; the IRS did not deny that in certain cases litigation could result although it said that this was often unlikely. Whether Textron’s evi- Douglas Carmichael, former chief auditor of the regulatory body for auditors of public companies (the Public Company Accounting Over- sight Board); and Gary Kane, an IRS expert on tax accrual work papers. Ta dence is materially different than that of the IRS re- mains to be considered. Ultimately, the district court denied the petition for enforcement. United States v. Textron Inc., 507 F. Supp. 2d 138, 150, 155 (D.R.I. 2007). The court agreed with the IRS that the agency had a legitimate purpose for seek- ing the work papers. Jd. at 145. It also ruled that insofar as the Textron-prepared work papers might otherwise be protected by attorney-client privilege, or the counter- part tax practitioner privilege for non-lawyers engaged in tax practice, see 26 U.S.C. § 7525 (2006), those privi- leges had been waived when Textron disclosed the work papers’ content to Ernst & Young. /d. at 152. However, the district court concluded that the papers were protected by the work product privilege, which de- rived from Hickman v. Taylor, 329 U.S. 495 (1947), and is now embodied in Rule 26(b)(3) of the Federal Rules of Civil Procedure. This privilege, the district court held, had not been waived by disclosure of the work papers to the accountant. Textron, 507 F. Supp. 2d at 152-53. The district court’s decision that the work papers were pro- tected work product involved both a description of fac- tual premises and a legal interpretation of applicable doctrine. The district court first said (paraphrasing a Textron witness) the work papers were prepared to assure that Textron was “adequately reserved with respect to any potential disputes or litigation” over its returns; the court also said that, by fair inference, the work papers served “to satisfy an independent auditor that Textron’s reserve for contingent liabilities satisfied the require- ments of generally accepted accounting principles (GAAP) so that a ‘clean’ opinion would be given” for Tex- 8a tron financial statements. Textron, 507 F. Supp. 2d at 143. Then, in its discussion of legal doctrine, the district court stated: As the IRS correctly observes, the work product privilege does not apply to “doc- uments that are prepared in the ordinary course of business or that would have been created in essentially similar form irres- pective of the litigation.”” Maine, 298 F.3d at 70 (quoting [United States v. Adlman, 134 F.3d 1194, 1202 (2d Cir. 1998)]). How- ever, it is clear that the opinions of Tex- tron’s counsel and accountants regarding items that might be challenged by the IRS, their estimated hazards of litigation per- centages and their calculation of tax re- serve amounts would not have been pre- pared at all “but for” the fact that Textron anticipated the possibility of litigation with the IRS .... Thus, while it may be accu- rate to say that the workpapers helped Textron determine what amount should be reserved to cover any potential tax liabili- ties and that the workpapers were useful in obtaining a “clean” opinion from E&Y regarding the adequacy of the reserve amount, there would have been no need to create a reserve in the first place, if Tex- tron had not anticipated a dispute with the IRS that was likely to result in litigation or some other adversarial proceeding. Textron, 507 F. Supp. 2d at 150. 9a The court concluded that the work papers were therefore prepared “because of” the prospect of litiga- tion, Textron, 507 F. Supp. 2d at 150, a phrase used in Maine v. United States Dep't of Interior, 298 F.3d 60, 68 (1st Cir. 2002). The court rejected the IRS’ reliance on a Fifth Circuit decision rejecting work product protection for tax accrual work papers on the ground that the Fifth Circuit followed a different “primary purpose” test for work protect. Textron, 507 F. Supp. 2d at 150 (discussing United States v. El Paso Co., 682 F.2d 530, 548 (5th Cir. 1982), cert. denied, 466 U.S. 944 (1984)). On appeal, a divided panel upheld the district court’s decision. The en banc court then granted the govern- ment’s petition for rehearing en banc, vacated the panel decision, and obtained additional briefs from the parties and interested amici. We now conclude that under our own prior Maine precedent—which we reaffirm en banc—the Textron work papers were independently re- quired by statutory and audit requirements and that the work product privilege does not apply. The case presents two difficulties. One, which can rea‘lily be dispelled, stems from the mutability of lan- guage used in the governing rules and a confusion be- tween issues of fact and issues of legal characterization. The other problem is more basic: how far work product protection extends turns on @ balancing of policy con- cerns rather than application of abstract logic; here, two circuits have addressed tax accrual work papers in the work product context, but, apart from whatever light is cast by Arthur Young, the Supreme Court has not ruled on the issue before us, namely, one in which a document is not in any way prepared “for” litigation but relates to a subject that might or might not occasion litigation 10a In origin, the work product privilege derives from the Supreme Court’s decision in Hickman v. Taylor, 329 U.S. at 510-11, and focused at the outset on the materials that lawyers typically prepare for the purpose of litigat- ing cases. Hickman v. Taylor concerned ongoing litiga- tion in which one side filed interrogatories seeking from opposing counsel memoranda recording witness inter- views that the latter had conducted after receiving notice of possible claims. Often such material and other items designed for use at trial (e.g., draft briefs, outlines of cross examination) are not obtained from or shared with clients and are unprotected by the traditional attorney- client privilege. Hickman v. Taylor addressed “the extent to which a party may inquire into oral and written statements of witnesses, or other information, secured by an adverse party’s counsel in the course of preparation for possible litigation after a claim has arisen.” 329 US. at 497. The Court cited a privilege in English courts protecting [a]ll documents which are called into exis- tence for the purpose-but not necessarily the sole purpose-of assisting the deponent or his legal advisers in any actual or antic- ipated litigation .... Reports... if made in the ordinary course of routine, are not pri- vileged.... Id. at 510 n. 9. This history led the Court to practical considerations: Proper preparation of a client’s case de- mands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theo- ries and plan his strategy without undue lla and needless interference . . . . This work is reflected, of course, in interviews, state- ments, memoranda, correspondence, briefs, mental impressions, personal be- liefs, and countless other tangible and in- tangible ways—aptly though roughly termed .. . as the “work product of the lawyer.” Td. at 511. On this basis the Court declared that the interrogato- ries, which sought witness interviews conducted by op- ponent counsel in preparation for litigation, were pro- tected by . Supp. 714, 723 (C.D. Cal. 1993). In any event, the Ninth Circuit also applies the “because of” test. Jn re Grand Jury Subpoena, 357 F.3d 900, 907-08 (9th Cir. 2004) (praising and following Adiman). 25a purpose co-exist. To answer that question, the Adlman court examined and rejected the “primary purpose” test adopted by the Fifth Circuit in El Paso, 682 F.2d at 542- 43, which only grants work-product immunity to work- papers prepared “primarily motivated to assist in future litigation over the return,” id. at 543: [Protection] is less clear, however, as to documents which, although prepared be- cause of expected litigation, are intended to inform a business decision influenced by the prospects of the litigation. The formu- lation applied by some courts in determin- ing whether documents are protected by work-product privilege is whether they are prepared “primarily or exclusively to assist in litigation”—a formulation that would po- tentially exclude documents containing analysis of expected litigation, if their pri- mary, ultimate, or exclusive purpose is to assist in making the business decision. Others ask whether the documents were prepared “because of” existing or expected litigation—a formulation that would in- clude such documents, despite the fact that their purpose is not to “assist in” litigation. Because we believe that protection of doc- uments of this type is more consistent with both the literal terms and the purposes of the Rule, we adopt the latter formulation. Adiman, 134 F.3d at 1197-98, quoted in part in Maine, 298 F.3d at 68. And if it needs to be spelled out any more clearly, Adiman makes it explicitly clear that the broad- er “because of” formulation is not limited to documents prepared for use in litigation: 26a We believe that a requirement that docu- ments be produced primarily or exclusively to assist in litigation in order to be pro- tected is at odds with the text and the poli- cies of the Rule. Nowhere does Rule 26(b)(3) state that a document must have been prepared to aid in the conduct of liti- gation in order to constitute work product, much less primarily or exclusively to aid in litigation. Preparing a document “in an- ticipation of litigation” is sufficient. The text of Rule 26(b)(3) does not limit its protection to materials prepared to assist at trial. To the contrary, the text of the Rule clearly sweeps more broadly. It ex- pressly states that work-product privilege applies not only to documents “prepared ... for trial” but also to those prepared “in anticipation of litigation.” If the drafters of the Rule intended to limit its protection to documents made to assist in preparation for litigation, this would have been ade- quately conveyed by the phrase “prepared ... for trial.” The fact that documents pre- pared “in anticipation of litigation” were also included confirms that the drafters considered this to be a different, and broader category. Nothing in the Rule states or suggests that documents pre- pared “in anticipation of litigation” with the purpose of assisting in the making of a business decision do not fall within its scope. 27a Id. at 1198-99 (emphasis and alterations in original). Ra- ther than confront this language, the majority resorts to simplistic generalizations. Using its novel “prepared for” test, the majority unhelpfully explains that “(elvery law- yer who tries cases knows the touch and feel of materials prepared for a current or possible . . . law suit.” Maj. Op. at 19. Once the majority ignores decades of «controlling precedent, the matter becomes so clear that “({n]o one with experience of law suits” could disagree. /d. I need say little else; the majority’s new “prepared for” rule is blatantly contrary to Adlman, a leading case interpreting the work-product doctrine that we specifi- cally adopted in Maine. The majority’s opinion is simply stunning in its failure to even acknowledge this language and its suggestion that it is respecting rather than over- ruling Maine. Il. The Majority Announces a Bad Rule The majority acts as if it is left to this court to draw a line from Hickman to the present case. In so doing, the majority ignores a host of cases which grapple with tough work product questions that go beyond the stuff that “[e]very lawyer who tries cases” would know is work product. Lower courts deserve more guidance than a simple reassurance that a bare majority of the en banc court knows work product when it sees it.’* Of course, 2 This test is reminiscent of Justice Stewart’s famously unhelpful test for identifying obscenity: [C}rimina] laws in this area are constitutionally limited to hard-core pornography. I shall not today attempt further to define the kinds of material I understand to be em- braced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it 28a since this is an en banc proceeding, the majority is free to create a new rule for the circuit—though it would be better if it admitted that it was doing so. But our new circuit rule is not even a good rule. First, as Judge Leval observed in Adiman, a “pre- pared for” requirement is not consistent with the plain language of Federal Rule of Civil Procedure 26, which provides protection for documents “prepared in anticipa- tion of litigation or for trial.” Fed. R. Civ. P. 26(b)(3)(A) (emphasis added); see also Adlman, 134 F.3d at 1198-99. There is no reason to believe that “anticipation of litiga- tion” was meant as a synonym for “for trial.” Claudine Pease-Wingenter, Prophetic or Misguided? The Fifth Circuit’s (Increasingly) Unpopular Approach to the Work Product Doctrine, 29 Rev. Litig. (forthcoming 2009) (analyzing and rejecting many of the arguments advanced by the majority in favor of a narrow construc- tion of the phrase “anticipation of litigation”). Since the terms are not synonymous, the term “anticipation of liti- gation” should not be read out of the rule by requiring a showing that documents be prepared for trial. See Car- cieri v. Salazar, 129 S. Ct. 1058, 1066 (2009) (discussing the basic principle that statutes should be construed to give effect to each word). Second, though the majority goes into some depth describing the foundational case of Hickman v. Taylor, 329 U.S. 495 (1947), it misses the fundamental concern of that decision with protecting an attorney’s “privacy, free from unnecessary intrusion by opposing parties and their counsel.” Jd. at 510. Without such privacy, litigants when I see it, and the motion picture involved in this case is not that. Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring). 29a would seek unfair advantage by free-riding off another’s work, thus reducing lawyers’ ability to write down their thoughts: Were the attorney's work accessible to an adversary, the Hickman court cautioned, “much of what is now put down in writing would remain unwritten” for fear that the attorney’s work would redound to the ben- efit of the opposing party. Legal advice might be marred by “inefficiency, unfair- ness and sharp practices,” and the “effect on the legal profession would be demoraliz- ing.” Neither the interests of clients nor the cause of justice would be served, the court observed, if work product were free- ly discoverable. Adlman, 134 F.3d at 1197 (quoting Hickman, 329 U.S. at 511) (citations omitted). The majority posits that these rationales do not apply to documents containing a law- yer’s legal analysis of a potential litigation, if that analy- sis was prepared for a business purpose. Maj. Op. at 21. This is both unpersuasive and directly contrary to the policy analysis in Adlman, which we adopted in Maine. Adlman identified an example of a protected document: A business entity prepares financial state- ments to assist its executives, stockhold- ers, prospective investors, business part- ners, and others in evaluating future courses of action. Financia] statements in- clude reserves for projected litigation. The company’s independent auditor requests a memorandum prepared by the company’s attorneys estimating the likelihood of suc- cess in litigation and an accompanying 30a analysis of the company’s legal strategies and options to assist it in estimating what should be reserved for litigation losses. Id. at 1200. Discussing this example, the court concluded that in this scenario “the company involved would re- quire legal analysis that falls squarely within Hickman’s area of primary concern—analysis that candidly dis- cusses the attorney’s litigation strategies, appraisal of likelihood of success, and perhaps the feasibility of rea- sonable settlement.” Jd. Further, there is “no basis for adopting a test under which an attorney’s assessment of the likely outcome of litigation is freely available to his litigation adversary merely because the document was created for a business purpose rather than for litigation assistance.” Jd. In other words, [iJn addition to the plain language of the Rule, the policies underlying the work- product doctrine suggest strongly that work-product protection should not be de- nied to a document that analyzes expected litigation merely because it is prepared to assist in a business decision. Framing the inquiry as whether the primary or exclu- sive purpose of the document was to assist in litigation threatens to deny protection to documents that implicate key concerns un- derlying the work-product doctrine. Id. at 1199; see also Roxworthy, 457 F.3d at 595 (stating “the IRS would appear to obtain an unfair advantage by gaining access to KPMQ’s detailed legal analysis of the strengths and weaknesses of [the taxpayer’s] position. This factor weighs in favor of recognizing the documents as privileged.”). dla The majority offers no response to this sound policy analysis and no reason to doubt that inefficiency and “sharp practices” will result from its new rule allowing discovery of such dual purpose documents, which contain confidential assessments of litigation strategies and chances. Instead of addressing these concerns, the ma- jority’s policy analysis relies instead on case-specific ra- tionales—namely the need to assist the IRS in its diffi- cult task of reviewing Textron’s complex return. See Maj. Op. at 22-23. Such outcome determinative reasoning is plainly unacceptable. Thus, properly framed, it is clear that the rationales underlying the work-product doctrine apply to documents prepared in anticipation of litigation, even if they are not also for use at trial.* ~ And these policy rationales are squarely implicated in this case. First, Textron’s litigation hazard percentages contain exactly the sort of mental impressions about the case that Hickman sought to protect. In fact, these per- centages contain counsel’s ultimate impression of the value of the case. Revealing such impressions would have clear free-riding consequences. With this information, the IRS will be able to immediately identify weak spots and know exactly how much Textron should be willing to spend to settle each item. Indeed, the IRS explicitly ad- mits that this is its purpose in seeking the documents. 8 Perhaps because of these very same concerns about privacy and fairness, the IRS itself argued for the protection of its docu- ments prepared for the dual purposes of helping the IRS under- stand the litigation risks-that might result if the IRS made the ad- ministrative decision to adopt a new program. Delaney, Migdail & Young, Chartered v. IRS, 826 F.2d 124 (D.C. Cir. 1987). This point was also noted by the Ad/man court when it observed that “the IRS successfully argued against the very position it here advocates.” Adlman, 134 F.3d at 1201. 32a Second, as argued to us by amici, the Chamber of Commerce of the United States and the Association of Corporate Counsel, if attorneys who identify good faith questions and uncertainties in their clients’ tax returns know that putting such information in writing will result in discovery by the IRS, they will be more likely to avoid putting it in writing, thus diminishing the quality of re- presentation. The majority dismisses such concerns, concluding that tax accrual workpapers are required by law. Maj. Op. at 21. But the majority fails to cite the record for this conclusion, likely because the majority is simply wrong. As the majority opinion earlier admits, Maj. Op. at 2-3, the law only requires that Textron pre- pare audited financial statements reporting total re- serves based on contingent tax liabilities. Accounting standards require some evidential support before such statements can be certified, but do not explicitly require the form and detail of the documents prepared here by Textron’s attorneys with respect to each potentially chal- lenged tax item. See also Michelle M. Henkel, Textron: The Debate Continues as to Whether Auditor Transpa- rency Waives the Work Product Privilege, 50 Tax Man- agement Memorandum 251, 260 (2009) (distinguishing auditor’s workpapers and corporate workpapers and ex- plaining that the latter are not mandatory but serve to evaluate a company’s litigation risks). Rather, all that must be actually reported is the final tax reserve liability amount. Thus, as amici worry, the majority’s new rule will have ramifications that will affect the form and detail of documents attorneys prepare when working to con- vince auditors of the soundness of a corporation’s re- serves. These concerns are even more clearly implicated in this case because the majority’s decision will remove protection for Textron’s “backup materials” as well as its 30a actual workpapers. The district court found that these materials included “notes and memoranda written by Textron’s in-house tax attorneys reflecting their opinions as to which items should be included on the spreadsheet and the hazard of litigation percentage that should apply to each item.” United States v. Textron Inc., 507 F. Supp. 2d 138, 143 (D.R.I. 2007). Thus, these documents thus go beyond the numbers used to compute a total re- serve. Rather, they explain the legal rationale underpin- ning Textron’s views of its litigation chances. The major- ity fails to acknowledge this subtlety, explain why it views such documents as required by regulatory rules, or explain why such mental impressions should go un- protected. Exposing such documentation to discovery is a significant expansion of the IRS’s power and will likely reveal information far beyond the basic numbers that the IRS could discover through production of Textron’s au- ditor’s workpapers. But more important are the ramifications beyond this case and beyond even the case of tax accrual workpapers in general. The scope of the work-product doctrine should not depend on what party is asserting it. Rather, the rule announced in this case will, if applied fairly, have wide ramifications that the majority fails to address. For example, as the IRS explicitly conceded at oral argument, under the majority’s rule one party in a litiga- tion will be able to discover an opposing party’s analysis of the business risks of the instant litigation, including the amount of money set aside in a litigation reserve fund, created in accordance with similar requirements as Textron’s tax reserve fund. Though this consequence was a major concern of the argument in this case, the majority does not even consider this “sharp practice,” which its new rule will surely permit. 34a And there are plenty more examples. Under the ma- jority’s rule, there is no protection for the kind of docu- ments at issue in Adlman, namely “documents analyzing anticipated litigation, but prepared to assist in a business decision rather than to assist in the conduct of the litiga- tion.” 134 F.3d at 1201-02. Nearly every major business decision by a public company has a legal dimension that will require such analysis. Corporate attorneys prepar- ing such analyses should now be aware that their work product is not protected in this circuit. III. The Workpapers Are Protected Under the Right Test Applying the “because of” test thoughtfully adopted in Adlman and Maine, the majority should have con- cluded that Textron’s workpapers are protected by the work-product doctrine. The proper starting point in reaching this legal conclusion should be the factual find- ings of the district court, which held an evidentiary hear- ing to understand the nature of the documents sought here by the IRS. A. Factual findings After considering affidavits and testimony, the dis- trict court found that the tax accrual workpapers are: 1. Aspreadsheet that contains: (a) lists of items on Textron’s tax returns, which, in the opinion of Textron’s counsel, involve issues on which the tax laws are unclear, and, therefore, may be challenged by the IRS; (b) estimates by Textron’s counsel express- ing, in percentage terms, their judgments regarding Textron’s chances of prevailing 35a in any litigation over those issues (the “hazards of litigation percentages”); anc (c) the dollar amounts reserved to reflect the possibility that Textron might not pre- vail in such litigation (the “tax reserve amounts”). Textron, 507 F. Supp. 2d at 142-143 (emphasis added). These workpapers do not contain any facts about the transactions that concerned the IRS. Jd. at 143. The district court also found, “[als stated by Norman Richter, Vice President of Taxes at Textron and Rox- anne Cassidy, Director, Tax Reporting at Textron, Tex- tron’s ultimate purpose in preparing the tax accrual workpapers was to ensure that Textron was ‘adequately reserved with respect to any potential disputes or litiga- tion that would happen in the future.” Jd. at 143. Fur- ther, “there would have been no need to create a reserve in the first place, if Textron had not anticipated a dispute with the IRS that was likely to result in litigation or some other adversarial proceeding.” Jd. at 150. In addition to recognizing these litigation purposes, the district court also recognized the dual purposes driv- ing the creation of these documents and found that the workpapers’ creation “also was prompted, in part” by the need to satisfy Textron’s auditors and get a “clean” opi- nion letter. Jd. at 143. The district court later clarified: Thus, while it may be accurate to say that the workpapers helped Textron determine what amount should be reserved to cover any potential tax liabilities and that the workpapers were useful in obtaining a “clean” opinion from [the auditor] regard- ing the adequacy of the reserve amount, 36a there would have been no need to create a reserve in the first place, if Textron had not anticipated a dispute with the IRS that was likely to result in litigation or some other adversarial proceeding. Id. at 150. Relatedly, the district court found that antici- pation of litigation was the “but for” cause of the docu- ments’ creation. /d. Thus, the district court clearly found two purposes leading to the creation of the workpapers. The majority makes no effort to reject these factual findings, but simply recharacterizes the facts as suits its purposes. For example, the majority declares, without reference to the district court’s more nuanced findings, that the “the IRS is unquestionably right that the imme- diate motive of Textron in preparing the tax accrual work papers was to fix the amount of the tax reserve on Textron’s books and to obtain a clean financial opinion from its auditor.” Maj. Op. at 12-13. At another point, the majority boldly pronounces, “the only purpose of Tex- tron’s papers was to prepare financial statements.” Jd. at 20. Of course, as explained above, the district court’s fac- tual findings about Textron’s “ultimate purpose” were directly contrary to these pronouncements. Discarding a district court’s factual finding on causation without any demonstration of clear error is not within this court’s proper appellate function. See Fed. R. Civ. P. 52(a) (“Findings of fact, whether based on oral or other evi- dence, mus* not be set aside unless clearly erroneous, and the revie"ving court must give due regard to the trial court’s opportunity to judge the witnesses’ credibility.”); see also Constructora Maza, Inc. v. Banco de Ponce, 616 F.2d 573, 576 (1st Cir. 1980) (noting that clear error re- view applies even when “much of the evidence is docu- 37a mentary and the challenged findings are factual infe- rences drawn from undisputed facts”). Instead, the majority exalts in the fact that the dis- trict court made no finding that the documents were “for use in possible litigation.” Maj. Op. at 13. That proposi- tion is true. But, as described above, “for use” (i.e. “pre- pared for”) is not and has never been the law of this cir- cuit. The majority does suggest that the documents busi- ness purpose “cannot be disputed.” Jd. This is also un- controversial. The district court found both a litigation and a business purpose. But, in straining to ignore the documents’ litigation purposes, the majority proceeds to rely heavily on the IRS’s expert. In so doing, the majori- ty makes no effort to explain why the district court should have been required to adopt the view that the workpapers existed only for a non-litigation purpose. The majority claims that Textron’s witnesses agreed with the IRS expert, but the majority fails to reconcile this proclamation with the competing view of Textron’s witnesses, which the district court explicitly relied upon in its factual findings regarding Textron’s “ultimate pur- pose.” Textron, 507 F. Supp. 2d at 143. This is another corruption of the proper role of an appellate court. See Anderson v. Besserier City, 470 U.S. 564, 574 (1985) (“Where there are twe permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous. ”’). The majority does suggest that the district court’s findings regarding the cause of the workpapers’ creation was only stated in its legal analysis section. Maj. Op. at 9. But the actual purpose of the documents’ creators, or, in the words of the district court, “but-for” causation, is a 38a factual issue, and the majority makes no effort to explain why such issue should be reviewed as a legal conclusion. The majority also proclaims, without record support, that “[a]ny experienced litigator would describe the tax accrual work papers as tax documents and not as case preparation materials.” Maj. Op. at 15. As described above, this conclusion reverses, without any finding of clear error, the district court’s factual findings. Further, this language dangerously suggests that this court can, from its general knowledge, offer an expert opinion as to how such documents are always seen by “experienced litigators.” Another of the many errors of this approach is revealed by reference to undisputed record testimony. Namely, the majority's assumption that tax accrual workpapers are a uniform class from corporation to cor- poration is simply wrong. When the district court care- fully and specifically defined what documents were ac- tually at issue in this case, it explained that “there is no immutable definition of the term ‘tax accrual papers,” and that their content varies from case to case, Textron, 507 F. Supp. 2d at 142, a conclusion that is consonant with the testimony of the government’s expert. Jd. at 142 n.2. Thus, even were it not our rule that we defer to the district court’s factfinding, such a rule would make good sense in handling the wide range of workpapers likely to confront district courts in the future as the IRS increa- singly seeks their discovery. Even if we looked at the purpose of tax accrual work- papers as a general matter, the district court’s conclu- sion that Textron’s anticipation of litigation drove its re- porting obligations is not so outrageous as to leave us with a firm conviction of error. Rather, other courts re- viewing similar kinds of documents have reached similar conclusions. Regions Fin. Corp. & Subsidiaries v. Unit- 39a ed States, No. 2:06-CV-00895-RDP, 2008 WL 2139008, at *6 (N.D. Ala. May 8, 2008) (concluding, in examining another company’s workpapers that “[wJere it not for anticipated litigation, Regions would not have to worry about contingent liabilities and would have no need to elicit opinions regarding the likely results of litigation”); Comm’r of Revenue v. Comcast Corp., 453 Mass. 298, 901 N.E.2d 1185, 1191, 1205 (2009) (affirming a finding of work-product protection for a business memorandum analyzing the “pros and cons of the various planning op- portunities and the attendant litigation risks” since the author “had ‘the prospect of litigation in mind when it directed the preparation of the memorandum” and would not have been prepared irrespective of that litiga- tion (quoting Adlman, 134 F.3d at 1204)). B. Analysis This court should accept the district court’s factual conclusion that Textron created these documents for the purpose of assessing its chances of prevailing in potential litigation over its tax return in order to assess risks and reserve funds. Under these facts, work-product protec- tion should apply. 1. The “because of” test First, the majority does not develop any analysis con- testing the proposition that disputes with the IRS in an audit can constitute litigation, within the meaning of Fed. R. Civ. P. 26(b)(8)(A). Indeed, such a conclusion is clear. For these purposes, the touchstone of “litigation” is that it is adversarial. See Restatement (Third) of the Law Governing Lawyers § 87 emt. h (2000). Though the initial stages of a tax audit may not be adversarial, the disputes themselves are essentially adversarial; the sub- 40a ject of these disputes will become the subject of litigation unless the dispute is resolved. Applying the “because of” test as articulated in Adl- man and Maine, the workpapers are protected. Under these precedents, a document is protected if, “in light of the nature of the document and the factual situation in the particular case, the document can be fairly said to have been prepared or obtained because of the prospect of litigation.” Maine, 298 F.3d at 68 (emphasis in origi- nal) (quoting Adlman, 134 F.3d at 1202). The “because of” test “really turns on whether [the document] would have been prepared irrespective of the expected litiga- tion with the IRS.” Adlman, 134 F.3d at 1204. As the dis- trict court found, the driving force behind the prepara- tion of the documents was the need to reserve money in anticipation of disputes with the IRS. Textron, 507 F. Supp. 2d at 143. Though other business needs also con- tributed to Textron’s need to create the documents, those needs depended on Textron’s anticipating litigation with the IRS. In other words, without the anticipation of litigation, there would be no need to estimate a reserve to fund payment of tax disputes. Jd. at 150. In this way, the dual purposes leading to the documents’ creation were intertwined, and work-product protection should apply. See Jn re Grand Jury Subpoena, 357 F.3d at 910 (“The documents are entitled to work product protection because, taking into account the facts surrounding their creation, their litigation purpose so permeates any non- litigation purpose that the two purposes cannot be dis- cretely separated from the factual nexus as a whole.”); see also Andrew Golodny, Note: Lawyers versus Audi- tors: Disclosure to Auditors and Potential Waiver of Work-Product Privilege in United States v. Textron, 61 Tax Law. 621, 629 (2008) (“As a commentator noted, ‘in the case of tax contingency reserves, the prospect of fu- 4la ture litigation and the business need for the documents are so intertwined that the prospect of future litigation itself creates the business need for the document.” (quoting Terrence G. Perris, Court Applies Work Prod- uct Privilege to Tax Accrual Workpapers, 80 Prac. Tax. Strategies 4 (2008))). The majority simply refuses to accept the district court’s finding that the documents would not exist but for Textron’s need to anticipate litigation. This rejection is essential to the majority’s erroneous conclusion. Ac- cepting the district court’s findings regarding purpose compels a finding of work-product protection, since the precedents are clear that under the “because of” test, dual purpose documents are protected. In fact, that is one of the very reasons some courts have adopted the test. 8 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure, § 2024 (2d ed. 2009) (“Dual purpose’ documents created be- cause of the prospect of litigation are protected even though they were also prepared for a business pur- pose.”); see also Roxworthy, 457 F.3d at 598-99 (“[Djocuments do not lose their work product privilege ‘merely because [they were] created in order to assist with a business decision,’ unless the documents ‘would have been created in essentially similar form irrespective of the litigation.” (quoting Adlman, 134 F.3d at 1202)); In re Grand Jury Subpoena, 357 F.3d at 907 (adopting Wright and Miller’s “because of” test in order to handle “dual purpose” documents); Maine, 298 F.3d at 68 (adopting Adiman after recounting the distinction be- tween the “because of” test and the “primary purpose” test in their handling of dual purpose documents); Adl- man, 134 F.3d at 1197-98, 1202 (“Where a document is created because of the prospect of litigation, analyzing the likely outcome of that litigation, it does not lose pro- 42a tection under this formulation merely because it is created in order to assist with a business decision.”); Jn re Special Sept. 1978 Grand Jury (Il), 640 F.2d 49, 61 (7th Cir. 1980) (“We conclude that the materials . . . were indeed prepared in anticipation of litigation, even though they were prepared as well for the filing of the Board of Elections reports.”). 2. The exception to the “because of” test The majority reads too much into one sentence from Maine and Adiman. Specifically, it is true that “the ‘be- cause of’ standard does not protect from disclosure ‘doc- uments that are prepared in the ordinary course of busi- ness or that would have been created in essentially simi- lar form irrespective of the litigation.’”” Maine, 298 F.3d at 70 (quoting Adiman, 134 F.3d at 1202). This proviso relates to the advisory notes to the rule, which excludes from protection “[mJaterials assembled in the ordinary course of business, or pursuant to public requirements unrelated to litigation, or for other nonlitigation purpos- es.” Fed. R. Civ. P. 26 advisory committee’s note (1970). Understood in light of the fact that the “because of” test unequivocally protects “dual purpose” documents, this proviso does not strip protection for dual purpose docu- ments that have one business or regulatory purpose. Ra- ther, the best reading of the advisory committee’s note is simply that preparation for business or for public re- quirements is preparation for a nonlitigation purpose in- sufficient in itself to warrant protection. The note states that there is no protection for documents created for business, regulatory, or “other nonlitigation purposes.” This language suggests the note is considering business and regulatory purposes as nonlitigation purposes, but does not suggest that the presence of such a purpose should somehow override a litigation purpose, should one 43a exist. Thus, correctly formulated, this exception should be understood as simply clarifying the rule that dual purpose documents are protected, though “there is no work-product immunity for documents prepared in the regular course of business rather than for purposes of the litigation.” Wright & Miller, supra, § 2024 (emphasis added); see also Roxworthy, 457 F.3d at 599 (“{A] docu- ment can be created for both use in the ordinary course of business and in anticipation of litigation without losing its work-product privilege.”). Under the majority’s in- terpretation, the exception swallows the rule protecting dual purpose documents. So understood, the exception does not control this case. After citing this exception, the district court con- cluded that the documents were not created irrespective of litigation because Textron would not have prepared the documents but for the anticipation of litigation. Tez- tron, 507 F. Supp. 2d at 150. The majority makes no ef- fort to label this finding clearly erroneous. To the con- trary, the finding is correct. The tax accrual workpapers identify specific tax line items, and then anticipate the likelihood that litization over those items will result in Textron having to pay the IRS more money. That Tex- tron will not ultimately litigate each position does not change the fact that when it prepared the documents, Textron was acting to anticipate and analyze the conse- quences of possible litigation, just like the memorandum example in Adlman, 134 F.3d at 1200. The documents would not be the same at all had Textron not anticipated litigation. So, under the “because of” test, as applied in Adiman and the many circuit courts that have followed it, these documents were not prepared “irrespective” of the prospect of litigation. They should be protected. 3. Arthur Young and El Paso do not control Neither the Supreme Court’s decision in United States v. Arthur Young & Co., 465 U.S. 805 (1984), nor the Fifth Circuit’s decision in El Paso, 682 F.2d at 530, support a different result. In Arthur Young, the Court declined to recognize an accountant’s work-product doctrine, thus holding that tax accrual workpapers created by an independent audi- tor were not protected. Arthur Young, 465 U.S. at 815- 21. But unlike the Court in Arthur Young, we are not now confronted with the question of whether to recog- nize a new privilege. Here, the doctrinal decision we face is how to apply existing worl-product doctrine to the present facts, in other words whether the “because of” test protects dual purpose documents, as the Maine and Adlman courts so held. This question was not at all pre- sented in Arthur Young. On the other hand, El Paso is clearly factually on point—there the Fifth circuit rejected work-product pro- tection for similar tex accrual workpapers. Hl Paso, 682 F.2d at 542. But, as explained above, that court applied a different definition of the work-product doctrine, asking whether the “primary motivating purpose behind the creation of the document was to aid in possible future litigation.” Jd. at 542-44 (concluding that the document should not be protected as it “carries much more the au- ra of daily business than it does of courtroom combat”). Finding Textron’s workpapers protected would not create a circuit split, but be merely an application of a widely acknowledged existing difference between our law and the law of the Fifth Circuit. It is precisely in these “dual purpose” situations that the “because of” test used in this circuit is meant to distinguish itself from the “primary purpose” test used in the Fifth Circuit. Maine, 45a 298 F.3d at 68 (citing Adlman for the proposition that the primary purpose test “is at odds with the text and the policies of Rule 26 because nothing in it suggests that documents prepared for dual purposes of litigation and business or agency decisions do not fall within its scope”). Thus, unlike the Fifth Circuit, we need not as- sess whether the tax accrual workpapers carry more of one “aura” than another. IV. Conclusion The majority’s decision may please the IRS and some tax scholars who understandably see discovery of tax ac- crual workpapers as an important tool in combating fraud. But this decision will be viewed as a dangerous aberration in the law of a well-established and important evidentiary doctrine. Whatever else one may think about this case, the majority’s assertion that it is following Maine is plainly erroneous. Rather, the majority’s “pre- pared for” tes: is directly contrary to Adlman, a decision we explicitly adopted in Maine. In straining to craft a rule favorable to the IRS as a matter of tax law, the majority has thrown the law of work-product protection into disarray. Circuits have al- ready split interpreting the meaning of “anticipation of litigation,” between the “primary purpose” and “because of” tests. Now this court has proceeded to further the split by purporting to apply the “because of” test while rejecting that test’s protection for dual purpose docu- ments. In reality, the majority applied a new test that requires that documents be actually “prepared for” use in litigation. The time is ripe for the Supreme Court to intervene anc set the circuits straight on this issue which is essential to the daily practice of litigators across the country. 46a The correct test is that spelled out in Adlman, and adopted by most circuit courts. Applying that test to the facts actually found by the district court, these tax ac- crual workpapers should be protected. For these rea- sons, I respectfully dissent. 47a APPENDIX B UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT No. 07-2631 UNITED STATES OF AMERICA, Petitioner, Appellant, Vv. TEXTRON INC. AND SUBSIDIARIES, Respondent, Appellee. January 21, 2009 Before TORRUELLA, BOUDIN, Circuit Judges, and SCHWARZER,’ District Judge. TORRUELLA, Circuit Judge. The question presented by this appeal is whether the work-product doctrine protects documents prepared by Textron Inc. for the purpose of calculating tax reserve liability from production to the IRS pursuant to an inves- tigative subpoena. Like other companies, Textron pre- pares “tax accrual workpapers” which, generally speak- ing, list the questionable positions Textron took on its “Of the Northern District of California, sitting by designation. 48a tax returns, estimate the likelihood that those positions will not withstand scrutiny, and calculate the amount of additional tax liability that would result from revision of those positions. Textron prepares these estimates so that it can maintain an adequate reserve fund, properly re- port its assets and liabilities, and obtain independent cer- tification of its financial statements. As part of the audit- ing process, Textron showed these tax accrual workpa- pers to Ernst & Young (“E&Y”) an independent auditor. This case arose when the Internal Revenue Service (“IRS”), after noticing potential tax shelter transactions, issued an administrative summons to Textron pursuant to I.R.C. § 7602 seeking tax accrual workpapers for Tex- tron’s 2001 tax returns. Textron refused to comply and asserted a number of defenses. The IRS sued to enforce the subpoena. After an evidentiary hearing, the district court ruled for Textron on its work-product protection claim, but rejected its other defenses. The district court also found that Textron’s disclosure to E&Y did not con- stitute waiver. The IRS appeals. After careful review,’ we affirm in part, vacate in part, and remand. I. Background The IRS subpoena sought “Tax Accrual Workpa- pers,” defined as: 1 Textron was joined by amici curiae Committee on Taxation and Committee on Corporate Reporting of Financial Executives Inter- national, Chamber of Commerce of the United States of America, and Association of Corporate Counsel. The IRS has submitted two scholarly articles which we have considered: Dennis J. Ventry, Jr., Protecting Abusive Tax Avoidance, 120 Tax Notes 857 (2008); and Claudine Pease-Wingenter, The Application of the Attorney-Client Privilege to Tax Accrual Workpapers: The Real Legacy of United States v. Textron, 8 Houston Bus. & Tax L.J. 337 (2008). 49a [AJll accrual and other financial workpa- pers or documents created or assembled by the Taxpayer, an accountant for [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1402%3A01. Public record. Not legal advice.