A recent decision by the full panel of the First Circuit Federal Court of Appeals that left corporate finance and tax departments concerned about the confidentiality of their papers appears headed for the U.S. Supreme Court. Textron, the defendant in the case, announced on Dec. 24 that it was filing an appeal to the nation's highest court. The 3-2 August decision, which reversed an earlier 2-1 decision by a three-judge appellate panel in the same circuit, establishes that at least for now, in the New England states (and Puerto Rico) covered by the Boston-based First Circuit, a company's tax accrual working papers, long held under the work product doctrine to be confidential documents, can no longer be considered automatically out of reach of the Internal Revenue Service.

In United States v. Textron and Subsidiaries, the case involving the Providence, R.I.-based aerospace and defense conglomerate, the First Circuit panel held that, "If a blueprint to Textron's possible improper deductions can be found in Textron's files, it is properly available to the government unless privileged.

"The work product privilege is aimed at protecting work done for litigation, not in preparing financial statements," the majority opinion said. "Textron's work papers were prepared to support financial filings and gain auditor approval; the compulsion of the securities laws and auditing requirements assure that they will be carefully prepared, in their present form, even though not protected; and IRS access serves the legitimate, and important, function of detecting and disallowing abusive tax shelters."