U.S. Senate Panel Hears Tax Scheme Testimony

U.S. corporations and the accounting and law firms that advise them have invented complex and illegal schemes to avoid taxes with no fear the Internal Revenue Service will stop them, a Senate panel heard Tuesday.

Former employees of jeans maker Levi Strauss & Co. and accountants at KPMG said they had been fired or disciplined for objecting to allegedly illegal activity. An anonymous witness testified behind a screen with his voice distorted, telling how U.S. companies pretended to lease foreign subways, bridges and air traffic control systems to generate improper tax deductions. He was described as a former executive in the leasing industry.

These stories, and more like them, were aired to build support for Senate legislation designed to outlaw more than two dozen specific tax-avoidance transactions and penalize companies that use others that have no legitimate business purpose.

Most of the witnesses who testified either are suing their former employers for wrongful termination or suing an accounting firm or law firm for selling them a tax shelter that was disallowed by the IRS.

Robert Schmidt and Thomas Walsh, former tax managers at Levi Strauss, told the panel they were fired after they refused to conceal information about how the company allegedly avoided paying $70 million in federal taxes from 1997 through 1999, and created a fake Brazilian tax shelter to deduct $149 million in taxes from 1986 to 1994.

Levi Strauss has countersued the men, accusing them of conspiring to make “false, misleading and defamatory statements” about the company and breaking confidentiality agreements.

Michael Hamersley said he remained on the payroll at KPMG but was denied access to the office, e-mail, computer network and other company resources after refusing to help market what he said was an illegal shelter.

KPMG spokesman George Ledwith said Hamersley’s allegations were baseless and were investigated and dismissed by senior accountants.