Judge can toss KPMG tax case

An appeals court all but dared a judge Wednesday to toss out what has been described as the largest criminal tax case in U.S. history if he believed prosecutors had violated the rights of former KPMG employees.

The U.S. 2nd Circuit Court of Appeals told the judge, Lewis A. Kaplan, that he had the authority to toss out conspiracy and tax evasion charges if he believed federal prosecutors had deprived the workers of their constitutional rights by pressuring KPMG to stop paying legal fees.

The appeals court said Kaplan erred when he encouraged some of the people indicted in the case to file breach of contract claims against KPMG to force it to pay their legal expenses.

The dispute over fees has put a hold on the criminal case, which sprang from what the government has described as a tax shelter fraud that helped the wealthy escape $2.5 billion in U.S. taxes.

KPMG has avoided criminal charges in the case by cooperating with authorities and agreeing to pay a $456-million fine.