Pete Campbell, senior manager in the tax group of KPMGs Boston office, was reviewing the work papers related to the uncertain tax positions prepared by his biggest client, Co. XYZ. Pete noticed that the client took the position that it did not need to record an uncertain tax benefit for a significant transaction because it had a should level opinion from its law firm. (Note that a should level tax opinion means that the law firm believes there is a 7090% probability that the tax benefit from the transaction will be allowed if litigated.)

When Pete asked to see the tax opinion, he was told by the firms tax director that the company did not want to disclose the item for fear the IRS also would ask to see the opinion. Pete has always had a good working relationship with the tax staff at Co. XYZ and trusts their integrity.

Required:

1. In your opinion, should Pete take the tax directors word when auditing the companys reserve for uncertain tax positions?
2. What would you do if you were in Pete's position?