Legal issues | AccountingWEB

Legal issues


Effects of KPMG’s Deferred Prosecution Agreement May Be Felt for Years

The most prominent case in recent years, involving the much strengthened Internal Revenue Service’s enforcement division working with the Justice Department, has been the investigation of KPMG by a New York grand jury for promoting tax shelter abuses. The investigation concluded with the decision by the Justice Department not to pursue a criminal indictment of the firm, but to enter into a deferred prosecution agreement (DPA) in which KPMG admitted to substantial wrongdoing and agreed to pay penalties and implement reforms and higher standards.

Learned Inefficiency: Box-Cutters vs. Bad Numbers

These days, it seems like everyone is in trouble. Just pick up a paper or turn on the news and you can hear about accounting firms getting fined for violating independence rules and federal agents breaching airport security with alarming regularity.
Practice Management

Whistleblowers or Lamplighters?

Snitch! Tattletale! Squealer!

The Blackberry Settlement & Competition Ahead

Research In Motion (RIM) averted a court-ordered shutdown of its US Blackberry service with a $612.5 million (£350 million) settlement with NTP on Friday. The more than four-year old lawsuit stems from RIM’s infringed use of NTP’s patents concerning the sending of e-mails between computers and wireless devices. The companies reported it was a “full and final settlement of all claims,” according to the Associated Press.
Community News

H&R Block Owes More Taxes

H&R Block underestimated its own “state effective income tax rate” in previous quarters, all the way back to 2004, and has been found to owe another $32 million in back taxes. The company has cut its full-year 2006 earnings in response to this charge.
Practice Management

Internal Review of Fannie Mae Cites “Attitude of Arrogance”

In a 1996 internal memo to Timothy Howard, Chief Financial Officer of Fannie Mae, Leanne Spencer, Vice President of Financial Reporting wrote, “What do I have up my sleeve to solve an earnings shortfall?” She adds in the same document, according to, “I recognize (and thought about it yesterday) that we might want to show the board $2.48. I made the decision that I wanted to show you the real answer and the let you decide if you wanted me to make any adjustment.

PCAOB & Sarbanes-Oxley Under Fire

The Public Company Accounting Oversight Board (PCAOB) is being challenged, constitutionally. The complaint was filed last week in U.S. District Court in Washington by the Free Enterprise Fund and the accounting firm of Beckstead & Watts, according to BusinessWeek. The PCAOB was created in 2002 and has since been the target of those saying it wielded too much unchecked power. The legal team includes Ken Starr, former independent counsel in the Monica Lewinsky investigation in the second Clinton Administration and Viet Dinh, former U.S.

California Sues H&R Block over “Instant” Tax Refunds

California’s Attorney General, Bill Lockyer, filed a suit in San Francisco last week alleging that H&R Block and participating lenders have deceived the tax preparation company’s clients by failing to disclose the true costs of “Instant” refund anticipation loans. The loans are short-term advances of federal income tax refunds, minus fees and interest, that give customers immediate access to their money. The lender who provides the advances – HSBC Bank - collects the borrower’s actual Internal Revenue Service (IRS) refund check as the loan repayment.

EU Opposes US Tax Breaks

The World Trade Organization (WTO) appellate court sided with the European Union (EU) in giving Washington 90 days to bring its tax break legislation into line. The WTO’s highest court affirmed previous judgments in denying this appeal by the United States, according to the Chicago Tribune. The Los Angeles Times reported that the high court gave the EU permission to reimpose sanctions on some $4 billion in U.S. exports.Peter Mandelson, European Union (EU) trade commissioner, told the Chicago Tribune, “The U.S.

AIG Reaches Settlement While Investigation of Execs Continues

The Securities and Exchange Commission (SEC), last week simultaneously announced with the Office of the Attorney General of New York State and The U.S. Department of Justice, (DOJ), the filing and settlement of charges that American International Group, Inc. (AIG) committed securities fraud. The agreement also settles charges against the company by New York and The DOJ of claims related to bid rigging and practices involving workers’ compensation funds.

Policing Resume Padding

The state of Washington is considering a bill that would impose a $1,000 fine on those claiming, in writing, to have an academic degree they didn’t possess. Also, failing to disclose that a listed degree came from an unaccredited institution will cause a fine. The bill passed the Washington House last week and now goes to the Senate, according to the Seattle Post-Intelligencer. These degrees are offered to people based on their general life experiences. The bills aim to close legal loopholes concerning “diploma mills” operating within the state and in foreign countries.

Family Limited Partnerships Being Probed by the IRS

Family limited partnerships (FLPs) are the target of increased scrutiny by the Internal Revenue Service (IRS). These vehicles are apparently a popular technique for reducing estate and gift taxes. The IRS is increasing the number of audits it performs, focusing on those taxpayers with incomes of $100,000 or greater, according to the Wall Street Journal.The IRS is concerned FLPs are being set up for other than legitimate business purposes. Audit interviews are focusing on how these partnerships are set up and run, according to the Wall Street Journal.

Cell Phone Users May be Eligible for Federal Excise Tax Refund

A federal appeals court in Washington D.C., in December, became the third appeals court to void the federal excise tax on telephone services which are billed only by time, and not by time and distance, USAToday reports. The excise tax, originally levied to support the Spanish-American War, was last amended in 1965, when the statutory definition of long distance charges became “time and distance”, according to The government has argued that the intent of the law is to tax all commercial long distance.

Think Personal E-Mails are No Big Deal? Think Again

We all do it. Using the company's e-mail system to send jokes, “talk” with friends or even comment on the boss–it's considered just a small part of an ordinary work day.But consider this: How would you like those e-mails to be made public? An anti-spam software maker has done just that, posting 515,000 e-mail messages from Enron employees at The e-mails were released to the public in 2003 by the Federal Energy Regulatory Commission, which collected them during its Enron investigation. The company, InBoxer Inc.
Education & Careers

Corporate Fraud, Regulation and Ethics

With new laws and regulations, short-term financial goals continue to drive corporate decision-making creating pressure and motive for accounting fraud, according to the Washington Post. The simple fact is that regulators cannot pass laws that force corporate executives to act with integrity or prompt investors to do their research before buying stock and other investments. For the first time in some 70 years, accountants, serving as gatekeepers, face independent oversight. “The profession has taken a bit of a bloody nose in the last few years,” Chester J.

IRS, Prosecutors Crack Down on Tax Evasion, Tax Fraud

Questionable Refund Program. “We will announce plans in the very near future to institute notification procedures as well as significant processing improvements to minimize the number of taxpayers whose refunds are frozen unnecessarily,” Everson said. Senators of both parties had requested the review following congressional testimony by the National Taxpayer Advocate, Nina Olson, New York Times reports.The IRS said that members of Congress and the National Taxpayer Advocate had raised legitimate issues regarding the length of delay and lack of notification for refund claims.

Advocates Target Predatory Lending Practices

Consider these two adages: Owning your own home is the American Dream, and if it sounds too good to be true, it usually IS too good to be true.Advocates worry that low-income taxpayers are paying too much attention to the first and not enough to the second, as predatory lending practices promise to make them homeowners, but instead put them in far worse financial shape than they were before.Bad lenders aggressively target low-income neighborhoods, offering loans based on inflated appraisals with high annual interest rates and payments the borrower cannot afford.

Watchdog Group Steps Up Battle with IRS Over Records

A federal government watchdog group has stepped up its fight against what it alleges is a blatant concealment of public records by the Internal Revenue Service (IRS).The Transactional Records Access Center (TRAC) last week filed a motion in U.S. District Court in Seattle, Wash., accusing the IRS of failing to abide by a 1976 court order requiring the agency to make available certain detailed information regarding its enforcement of tax laws. In a separate action in April, TRAC sued the IRS in U.S. District Court in Washington, D.C.

Private Offerings & Managed Buyouts: No Prospectus Needed

Four courts have upheld a statute governing private offerings stating that a prospectus is not required. The 2nd U.S. Circuit Court of Appeals has issued the ruling, Yung v. Lee, according to Judges Reena Raggi, Dennis Jacobs, and Robert Sack decided the case. Raggi wrote the opinion for the panel. The details of the case occurred over 1998 and 1999. Yung Yao, and his son Billy Yung, acquired shares in Integrated Transportation Network Group (ITNG), according to ITNG is a wholly owned subsidiary of the Dawson Science Corporation.


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