Discovering an accountant's tax accrual workpapers: Should auditors join the priveleged few?

This article explores the legal controversy over the limits of the Internal Revenue Service's (IRS) power to summons documents in an investigation of corporate income tax liability. The controversy focuses upon IRS access to an independent auditor's tax accrual workpapers. Required by federal securities laws, these workpapers record the accountant's predictions of the likelihood of successful IRS challenges to aggressive corporate tax positions. Routine IRS access to the tax accrual workpapers would stifle management's candid disclosure of questionable tax positions to the auditors. This article defines the limits of an auditor's work-product privilege premised on the social need for full disclosure of a company's contingent tax liabilities to assure the setting aside of adequate reserves to cover those contingencies. While the privilege should serve to protect those investing in American businesses, its primary purpose is to maintain a public trust in the integrity of certified financial statements.