A series of e-mails dating from the mid-1990s to 2003 show that even after KPMG was ordered by the Internal Revenue Service to stop pushing tax shelters considered abusive, the Big Four firm continued to promote at least a dozen new similar shelters, the New York Times reported.
New documents issued Monday by the Senate subcommittee looking into the abusive shelters, show that KPMG was continuing to develop tax shelters similar to those deemed abusive, but do not indicate whether the new tax shelters were ever actually sold, the Times reported. The old shelter in question was called OPIS, or Offshore Portfolio Investment Strategy
"KPMG has taken strong measures to reorganize and restructure its tax practice, including changes to leadership, policies, practices and procedures," George Ledwith, the chief spokesman for KPMG, told the Times Wednesday. "Simply put, we are not doing today what we did years ago."
The firm's aggressive strategies shown in the e-mail messages appear to contradict the picture painted in documents released last fall by the Senate Permanent Subcommittee on Investigation, which held two days of hearings in November. The hearings investigated OPIS and three other KPMG shelters, named FLIP, BLIP and SC2. From those four tax shelters alone, KPMG has said that it earned fees of $124 million, the Times reported.
The IRS never considered the original OPIS, which created paper losses that were offset in whole or in part by legitimate taxable income, to be a valid tax shelter and determined it and any other similar variations were in August 2001, the Times reported.
The new e-mails show a significant relationship between KPMG and First Union bank, in which KPMG attempted to sell the tax shelters to wealthy First Union customers in exchange for KPMG paying fees to First Union, the Times reported.
An August 1999 internal e-mail message at First Union refers to an unspecified "KPMG investment/tax strategy which KPMG shared" with senior bank officials, adding that "First Union has a very high profile across our franchise for being associated with 'tax' strategies; namely, FLIP and BOSS. Sandy does not want this kind of high profile to be associated with the new strategy." "Sandy" is a reference to William L. Spitz, a former KPMG tax partner who was most recently managing executive of financial planning at Wachovia, which merged with First Union. Spitz is no longer with First Union.
Another internal KPMG e-mail message in March 2001 refers to "how we are bringing SC2 into certain First Union customers."
Among other sales strategies and an indication that KPMG may not have fully cooperated with IRS investigators, the e-mails show a complex internal system built around the tax shelter business, including light-bulb shaped paperweights given to employees who had bright ideas regarding the shelters, the Times reported.