United States v. El Paso Co.

The El Paso Company (defendant) was a large holding company. During its routine audit of El Paso’s tax returns for 1976, 1977, and 1978, the Internal Revenue Service (IRS) asked El Paso to produce its tax-pool analyses for those years. El Paso’s tax-pool analyses (also sometimes known as noncurrent tax accounts or tax-accrual work papers) documented the areas in which El Paso might be required to pay additional taxes. The analyses were a product of the complexity of the federal tax code and the fact that the preparation of El Paso’s tax returns involved judgment and numerous gray areas. As a publicly traded corporation, El Paso was required to address the risk that the IRS might disagree with its tax decisions by establishing a balance-sheet reserve for contingent future tax liabilities. El Paso’s in-house tax department, which was comprised of 80 accountants and 10 attorneys, created the tax-pool analyses after El Paso filed the corresponding returns. El Paso discussed some of the information and many of the potential tax-liability issues reflected in its tax-pool analyses with its independent auditors, who were required to determine whether El Paso’s balance-sheet reserve was adequate. El Paso declined to produce its tax-pool analyses. When El Paso also refused to comply with an IRS summons seeking production of the tax-pool analyses, the United States sued to enforce the summons. El Paso argued that the tax-pool analyses were protected from disclosure by the attorney-client privilege. However, El Paso asserted privilege on a blanket basis without particularizing its privilege assertion with respect to any specific documents. The district court ordered enforcement of the IRS summons. El Paso appealed.