Senate Report Targets Tax Shelters of Late ‘90s

Investment banks UBS and Deutsche Bank established billions of dollars in credit lines for clients of accounting firms such as KPMG to create sham tax shelters in the late 1990s, according to a U.S. Senate report released Thursday.

Also, banking firm Wachovia Corp., acting through First Union National Bank, referred its clients to KPMG and helped the firm market the tax shelters, according to the report by the Permanent Subcommittee on Investigations.

“Evidence obtained by the subcommittee shows that the banks knew they were participating in transactions whose primary purpose was to provide tax benefits to persons who had purchased tax products from KPMG,” the report said.

It was the first time a congressional investigation had presented such a complete picture of the role of financial services companies in the proliferation of questionable tax shelters during the late 1990s. The report stems from hearings the panel held on tax shelters in 2003.

Calls to the banks seeking comment weren’t immediately returned. The report stated that all the companies mentioned in the investigation said they no longer marketed tax shelters.

The report made 10 recommendations, including stiffer penalties for companies that promote sham tax shelters.