Textron won an important battle in the war over tax records, but it still has a significant hurdle to clear in protecting its work papers from entering the hands of tax auditors.

Textron is the public company that went to court to avoid having to hand over its tax accrual work papers to the Internal Revenue Service. The case is being watched closely because of its implications for how much information companies ultimately will be expected to hand over to comply with Financial Interpretation No. 48: Accounting for Uncertainty in Income Taxes.

The U.S. Circuit Court of Appeals for the First Circuit handed Textron a “substantial, but incomplete victory,” said Kevin Kenworthy, an attorney with Washington law firm Miller & Chevalier. The court determined Textron’s work papers are protected from disclosure to the IRS under the work product doctrine, which says taxpayers do not have to hand over documentation prepared by their attorneys to prepare for a legal defense.

It’s still unclear, however, how the work product doctrine applies to audit documentation. “The open question is whether that protection was waived when Textron showed its work papers to its auditors at Ernst & Young in the course of an audit,” said Kenworthy. The Circuit Court handed the case back down to district court for further work on that issue, he said.

FIN 48 is the controversial accounting pronouncement that requires companies to provide information in financial statements about where they may have uncertainty about tax benefits they’ve claimed in their tax returns. Corporate taxpayers have been tap dancing with auditors since it went into effect in 2007 to comply with the interpretation without telegraphing to the IRS where there may be weaknesses in tax claims.