KPMG Must Reveal Tax Shelter Users
A federal judge Tuesday ordered Big Four accounting firm KPMG to identify participants in certain tax shelters and produce documents sought by the U.S. government.
U.S. District Judge Thomas Hogan granted a motion sought by the government to force KPMG to comply with nine Internal Revenue Service summonses issued from January to May 2002 in connection with a wide-ranging probe of tax shelters.
“We’re reviewing the order and opinion of the court,” said Tim Connolly, a spokesman for KPMG.
A lawyer for the firm in Washington could not be reached for comment.
KPMG had argued that it was not required to disclose certain documents involved in the case, but Hogan said he disagreed with the firm’s position.
“KPMG appears to have withheld documents summoned by the IRS by incorrectly describing the documents to support dubious claims of privilege,” Hogan wrote in a legal opinion.
The judge cited evidence that a law firm hired by KPMG “was not engaged in rendering true legal advice, but was rather a partner with KPMG in its tax shelter marketing strategy.”
The law firm, Sidley & Austin, merged with Brown & Wood in May 2001 to become Sidley Austin Brown & Wood.
The IRS for months has been looking at ways that accounting firms, not just KPMG, have helped clients save billions of dollars through questionable tax avoidance strategies.
KPMG tax shelter strategies have also been under scrutiny by the U.S. Senate’s Permanent Subcommittee on Investigations.
In November, the panel said it had found that accountants, bankers and lawyers had aggressively marketed abusive tax shelters at a cost of billions of dollars to the U.S. Treasury.
Shelters involved devices such as phony paper losses or phony charitable donations, the subcommittee said.
KPMG has said that it no longer offers tax strategies at issue -- including shelters known as FLIP, BLIPS, OPIS and SC2 -- and that it is cooperating with authorities.
At a subcommittee hearing in November, KPMG said that it “made it very clear to the clients that they were undertaking complex transactions on which the law was ambiguous and often had not been clarified by either the IRS or the courts.”
