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Preserving Privilege

The Textron case on work-product privilege centered on the company's tax accrual workpapers. The memos are a normal part of a company's financial statements, showing the analysis a company (and, often, its lawyers and accountants) used to calculate the reserves it sets aside for uncertain tax positions, which are common in tax law. In laymen's terms, tax accrual workpapers embody that math-class platitude to "show your work."

Companies handle tax accrual workpapers differently, and, especially in light of Textron, some might want to reevaluate their policies. But it's a tricky balance to go into enough detail without destroying privilege.

"In the Textron case, it sounds like it was just a spreadsheet with numbers on it, and that may not have helped Textron very much in arguing that it was protected work product," says Michael Jacobs, a Reed Smith partner.

Some companies, Jacobs says, go into much more detail in their memos, and he says that can look more like they were prepared "in anticipation of litigation"--the wording the en banc 1st Circuit used to deny work-product privilege in Textron.

"You'd probably have more chance of succeeding wit the work-product doctrine argument if you had more detailed workpapers," Jacobs says. "But the flip side of that is that if you turn those types of detailed materials over to your accountants, you've now given up any sort of attorney-client privilege protection. And you really then are relying entirely on the work-product doctrine, with Textron proves can be a little risky."

If he has clients who want to go into more detail in their memos and who have attorneys involved, Jacobs often advises that the attorney create the detailed memos and then keep them on file--but not actually put them into the workpaper files.

"You might discuss it with the accountants, but you don't actually turn over the documents to the accountants," he says. "That way you can at least preserve your attorney-client privilege down the road."

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