KPMG Wins Ruling in Tax Shelter Case

A federal appeals court has ruled that U.S. courts have jurisdiction over a dispute involving a failed KPMG tax shelter that cost a California businessman $52 million in taxes.

Thursday’s ruling by a three-judge panel of the U.S. 9th Circuit Court of Appeals is a victory for the accounting firm, which had sought to have a federal judge appoint an arbitrator rather than have the case be handled in California state court.

Judge Ferdinand Fernandez wrote that federal courts did not give up jurisdiction when the original arbitrator in the case, the NASD (formerly the National Assn. of Securities Dealers), declined to hear the matter.

The case involves a tax shelter used by J. Paul Reddam on the advice of KPMG and its law firm, now known as Sidley Austin.

He obtained the shelter to minimize tax liabilities from his 1999 sale of DiTech Funding Corp., a mortgage lender he founded, for as much as $240 million to General Motors Corp.

Reddam’s shelter was created by parties including KPMG and investment firm Presidio Advisors, the court said.