STOP IFRS - IRS & Taxing Agencies

A few days ago, I took another class titled "How Much Must You Reveal to IRS and Taxing Agencies?". One is the issues raised was documentation of uncertain tax positions. I recently read that the IRS is requiring companies to disclosure their uncertain tax positions for 2010 and that the schedule UTP has now been finalized.

The class discussed "the work product doctrine" which protects documents prepared in anticipation of litigation as it relates to uncertain tax positions. Then there is the "Kovel Doctrine". What is this? I never heard of it before! In simple words, engaging an expert to explain and or interpret documents which are written in a format that a lay person cannot understand and still maintain the attorney/client privilege with respect to the documents. For example giving a balance sheet to an accountant and asking him/her to explain what it is all about so that you can take that document together with its related explanations and make those a part of your "privilege documents".

These issues were raised because of the "Textron" and "Deloitte" cases. In the Textron case, it did not want to produce tax accrual workpapers and IRS argued it should because the papers were not "created for use in litigation". In the "Deloitte" case, the issue was also tax reserves work papers; however, the Court ruled in Deloitte's favor that the documents were protected.

Lessons learnt - know what is Work Product Doctrine; Attorney /Client Privilege; and Tax Practitioner Privilege. Documentation is key when resorting to use any of these protections.