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In brief

In United States v. Sanmina Corp. & Subsidiaries, No. 18-17036, 2020 U.S. App. LEXIS 24936 (9th Cir. Aug. 7, 2020 ), the Ninth Circuit embraced the D.C. Circuit’s decision in United States v. Deloitte LLP, 610 F.3d 129 (D.C. Cir. 2010) confirming that the disclosure of a work product to certain third parties, like a law firm providing valuation services or an independent auditor, does not waive protection. The Ninth Circuit’s holding should give some comfort to taxpayers wondering where the Ninth Circuit comes down in the split between Textron and Deloitte, as described below. As also described below, the Ninth Circuit’s analysis of implied waiver provides guidance to taxpayers defending work product claims during an audit and in litigation.


In the tax world, questions arise over the application of work product protection to materials prepared in anticipation of litigation that taxpayers disclose to their financial statement auditors. In Textron, the First Circuit held that tax accrual work papers disclosed to the taxpayer’s independent auditors were not protected by the work product privilege because they were prepared to support financial filings and gain auditor approval, not “for litigation” (United States v. Textron, 577 F.3d 21, 31 (1st Cir. 2009)). The Textron dissent acknowledged that Textron has “thrown the law of work-product protection into disarray.” A year later, in Deloitte, the D.C. Circuit reached a contrary conclusion, holding that the taxpayer had not waived work product protection as a result of disclosing materials to its independent auditor because the auditor was neither an adversary nor a conduit to an adversary.

Although Sanmina does not involve a taxpayer’s disclosure to its financial statement auditors — it involves disclosures to an outside law firm and to the IRS — the Ninth Circuit’s Sanmina decision applies the D.C. Circuit’s Deloitte analysis and therefore provides a strong indication that the Ninth Circuit will find no waiver of work product protection for work products disclosed by a taxpayer to its auditors.

Sanmina’s case started with a worthless stock deduction arising from its ownership of shares in a Swiss subsidiary. During the IRS audit, Sanmina provided the IRS with a valuation report prepared by DLA Piper (“DLA“) to support its worthless stock deduction. To prepare the valuation report, Sanmina provided DLA with two memoranda authored by Sanmina’s in-house counsel (“Attorney Memos“). DLA’s final valuation report included a footnote reference to the Attorney Memos. Following receipt of the valuation report, the IRS issued a summons for the Attorney Memos. Sanmina objected, arguing that the memoranda were protected by both the attorney-client privilege and work product doctrine.

The district court initially denied enforcement of the summons but, after the IRS appealed, the Ninth Circuit remanded for in-camera review of the Attorney Memos, instructing the district court to “reconsider its ruling on the asserted privilege following its review of the pertinent documents” (United States v. Sanmina, 707 F. App’x 865 (9th Cir. 2017)). On remand, the district court held that the Attorney Memos were protected by attorney-client privilege and work product protection but that both privileges had been waived. This time, Sanmina appealed.

On appeal, the Ninth Circuit analyzed whether Sanmina waived attorney-client privilege and work product protection over the Attorney Memos (1) when Sanmina disclosed the memoranda to DLA in connection with obtaining the valuation report and (2) when Sanmina produced the DLA valuation report to the IRS to support its worthless stock loss deduction. The Ninth Circuit agreed that Sanmina waived attorney-client privilege when it disclosed the memoranda to DLA, obviating the need for the court to analyze a waiver for the subsequent disclosure to the IRS (Sanmina, 2020 U.S. App. LEXIS 24936, at *23, *26). The Ninth Circuit did not find clearly erroneous the district court’s finding that Sanmina’s purpose in sharing the Attorney Memos with DLA was to obtain a non-legal valuation analysis.

On the other hand, the Ninth Circuit found that Sanmina did not waive work product protection over the Attorney Memos when it provided them to DLA. In so holding, the court, citing Deloitte, noted that DLA was not an adversary (which the government had conceded) and, importantly, found that DLA was also not a potential adversary to Sanmina with respect to the subject matter the work product addressed. The court then analyzed whether, by providing the Attorney Memos to DLA, Sanmina had disclosed them to a “conduit to an adversary,” which the IRS argued because DLA’s valuation report “was intended for disclosed to interested tax authorities [and therefore] any expectation of confidentiality was …. absent” (Id. at 26). Again, the court rejected this argument by reference to Deloitte, finding that Sanmina “‘had a reasonable basis for believing that [DLA Piper] would keep the [Attorney Memos] confidential’ in the process of producing its valuation analysis” (Id). As support for this conclusion, the court observed that, by engaging DLA to assist in anticipation of litigation with the IRS, Sanmina and DLA shared “a common litigation interest” regarding the Attorney Memos (Id). The court further found no evidence of “self-interested selective disclosure” — which arises when a party discloses some work product to at least one adversary — when Sanmina provided the Attorney Memos to DLA because, as the court had found, DLA was not Sanmina’s adversary ( 27).

Although Sanmina did not waive work product protection over the Attorney Memos when disclosing them to DLA, Sanmina implicitly waived work product protection over the Attorney Memos when it produced the valuation report to the IRS. Implied waiver occurs by disclosure or conduct that is inconsistent with the maintenance of secrecy against an adversary and “is often expressed in terms of preventing a party from using the privilege as both a shield and a sword” (Sanmina, 2020 U.S. App. LEXIS 24936, at *15). As implied waiver rests on the “fairness principle,” the court found that Sanmina’s expectation of confidentiality over the Attorney Memos became less reasonable once Sanmina decided to disclose to the IRS a valuation report that explicitly cited Attorney Memos as a basis for its conclusions (Id).

Importantly, despite finding that Sanmina had waived work product protection, the court held that the fairness doctrine also dictates a narrow waiver, citing its decision in Bittaker v. Woodford, 331 F.3d 715, 720 (9th Cir. 2003) (noting that courts should be careful to “impose a waiver no broader than needed to ensure the fairness of the proceedings before it. Because a waiver is required so as to be fair to the opposing side, the rationale only supports a waiver broad enough to serve that purpose.”). While access to the entirety of the memoranda may have been helpful to the IRS, that was not enough to justify the IRS’s access to the legal theories and opinions of its potential adversary in litigation. As a result, the implied waiver applied only to “factual, or non-opinion, work product contained in the Attorney Memos ….” Work product protection as to the opinion work product remained intact. In reaching its holding on fairness grounds, the court held that “the potential consequences of Sanmina’s decision to withhold the Attorney Memos and support the deduction with a questionable valuation report ultimately bear more heavily on Sanmina than on the IRS” (Id. at 30). In other words, the IRS could simply deny the deduction if it felt that Sanmina failed to support the deduction adequately. The court also observed that, at the audit phase — prior to any formal litigation regarding the merits of Sanmina’s deduction — it was not clear how the IRS had been unfairly disadvantaged.

For tax practitioners, Sanmina shows that the Ninth Circuit supports the D.C. Circuit’s Deloitte opinion and is therefore unlikely to find a work product waiver when a taxpayer discloses protected materials to its auditors. The Ninth Circuit’s holding of implied waiver also highlights the application of the fairness doctrine to whether a waiver of work product occurred and the extent of the ultimate consequences of that implied waiver. Whether the Ninth Circuit would have reached the same conclusion had the issue in dispute been an item of income as opposed to a deduction is less clear. Likewise, the court’s holding suggests that the stage of the dispute is a factor to consider when determining whether a party is unfairly disadvantaged by a privilege claim.


Mark Roche practices in the areas of tax controversy and white-collar criminal defense. Mr. Roche routinely represents corporations and individuals before the Internal Revenue Service, the Department of Justice and the Securities and Exchange Commission, as well as in litigation in federal and state court.


Victoria Kovanis is an associate in Baker McKenzie's Tax Practice Group in Palo Alto, where she advises multinational corporations on tax planning, controversy, and transfer pricing matters.