Legal issues


Inmate Tax Refund Scams On the Rise

Inmates are filing false tax returns and scamming the Internal Revenue Service (IRS). It’s a nationwide problem to the tune of $68 million from 18,000 prisoners, for the 2004 tax year alone. The Arizona Star reports that convicts are responsible for more than one-seventh of all false refunds nationally.The prisoners found to be filing false refunds avoid prosecution from state and federal officials since they are already behind bars, according to the Arizona Star.

2005, the Year of the Restatement and the Year KPMG Survived

With a background of former executives seen entering courthouses, called to account for corporate scandals of previous years, and indictments announced against individuals and KPMG partners, corporate accounting issues surfaced in a less dramatic way in 2005, through restatements of financials, at giants like American International Group (AIG) and mortgage companies, Fannie Mae and Freddie Mac.

SOX Section 404 Backlash

Sarbanes-Oxley (SOX) has been law since July 2002 and the collapses and financial carnage created by Enron, Tyco International, WorldCom, Adelphia Communications, HealthSouth, and Cendant, may have lost their prominence in people’s minds. Bloomberg reports executives are becoming more vocal that SOX has become an overzealous exercise to contain and detect corporate corruption. Section 404 is the current battlefield. “I would like to see it opened and revised. Sarbanes-Oxley has become extraordinarily expensive,” said David Chavern, vice president of capital markets at the U.S.
Community News

Accounting Firms Seek Liability Protection

Seeking protection from financial damages, the Big Four are now including punitive damage waivers in their audit client contracts. These waivers are drawing controversy from government regulators, investors, and clients. These contracts may require disputes to go to arbitration and waive rights to punitive damages and jury-trial rights. Bloomberg reports that the Federal Financial Institutions Examination Council is preparing to bar large banks from agreeing to these contracts as they believe these waivers may lead to less thorough audits.

Greenberg Won’t Face Criminal Charges

The former CEO of American International Group (AIG) will not face criminal charges initiated by New York Attorney General Eliot Spitzer. Spitzer may continue to pursue civil charges against Greenberg with an amended civil complaint containing new information. The civil suit is primarily based on AIG’s misuse of finite reinsurance polices that concealed reserve issues from AIG’s balance sheet, according to “The office decided months ago to pursue the case as a civil matter,” Spitzer spokesman Darren Dopp told USA Today.

Andersen Prosecution Abandoned: Enron’s Final Chapter?

When the Justice Department walked away from its prosecution of Arthur Andersen last week, was it finally closing the book on the Enron saga? The decision not to re-try the case comes only six months after the U.S. Supreme Court overturned Andersen’s 2002 conviction for obstruction of justice charges related to the Enron corporate fraud investigation and eventual collapse.
Community News

New Partners and a Preliminary Settlement for KPMG

Things seem to be looking up for KPMG recently.On Monday, U.S. District Judge Dennis M. Cavanaugh gave preliminary approval to a proposed $225 million class-action settlement by KPMG and Sidley Austin Brown & WoodLLP, the Associated Press reports. KPMG would pay 80 percent of the settlement, according to the Associated Press.A conclusion to the suit over the sale of questionable tax shelters would be good news for KPMG’s 166 new partners.

Berkshire Hathaway Wins Three-Year Tax Case

Warren Buffett’s Berkshire Hathaway will receive $23.1 million plus interest after a Federal District Court judge ordered the Internal Revenue Service (IRS) to pay the company ending three years of litigation. Reuters reports the case stems from the 1989, 1990, and 1991 purchases of dividend-paying stocks with the proceeds of portions of $750 million which the company said it borrowed to strengthen its finances. The tax rule cited by the IRS in prosecuting the company governs the purchase of stock with borrowed money and any deductions resulting from the purchases.
Community News

New Charges Issued in KPMG Probe

The Justice Department has issued an expanded indictment in the continuing probe of KPMG. This indictment amends the first indictment issued in August by adding 43 counts of tax evasion and two counts of obstruction of the Internal Revenue Service (IRS). Each of the 19 defendants has not been charged with the same offenses according to the indictment.
Community News

Credit Abuse Resistance Education Program

The effects of new bankruptcy law have received considerable attention lately. Just as important, however, is educating people, especially young people, how to avoid bankruptcy. The Credit Abuse Resistance Education or C.A.R.E. Program is a national program founded by the U.S.

Supreme Court Rejects Executives’ Appeal of SEC’s Pay Freeze Order

The U.S. Supreme Court on Tuesday let stand a lower court ruling against two former Gemstar-TV Guide International, Inc. executives, allowing the Securities and Exchange Commission (SEC) to freeze their severance payments under a provision of the Sarbanes Oxley Act of 2002.
Community News

Judge Delays KPMG Investor Lawsuit Settlement

U.S. District Court Judge Dennis Cavanaugh has scheduled a hearing to review the investor settlement where KPMG and the law firm Sidley Austin Brown & Wood agreed to pay $225 million. The the accounting firm and the law firm initially agreed to pay $195 million plus $30 million for legal fees to settle an investor class action suit back on September 27.

Judge: Private Suits Not Allowed Under Section 304 of SOX

A federal judge has ruled that private shareholders cannot file derivative lawsuits under Section 304 of the Sarbanes-Oxley Act.Under Section 304, corporate executives can be forced to give back profits and bonuses gained in alleged accounting scandals. U.S.
Community News

KPMG, Sidley Austin Brown & Wood to Pay $225 Million to Settle Client Suit

KPMG and Sidley Austin Brown & Wood LLP (Sidley Austin), a Chicago law firm, have reached preliminary agreement with a law firm representing hundreds of former clients who participated in tax shelters later determined to be abusive by the Internal Revenue Service, according to KPMG and Sidley Austin will pay $195 million to their former clients, according to the agreement, which is preliminary, and $30 million to the attorneys in the class action lawsuit, Milberg, Weiss Bershad & Schulman LLP.

Tax Breaks for Business on High Court's Agenda

The U.S. Supreme Court will determine whether states can offer tax breaks to encourage businesses to make capital investments.The high court on Tuesday accepted appeals by the state of Ohio and the DaimlerChrysler Corporation, which received an Ohio investment tax credit to build a Jeep plant in a distressed part of Toledo.

Retail Merchants Groups Sue Credit Card Companies

Four merchant associations have filed a class action suit against Visa USA, MasterCard Inc. and major US banks including Bank of America Corp., Citigroup Inc., and JPMorgan Chase & Co., alleging collusion in setting interchange fees, according to a report from Reuters. Merchants pay an interchange fee on every transaction, part of which goes to the merchant’s bank and part to the consumer’s credit card company.

Court Extends Autodialer Ban to Text Ads to Cell Phones

An Appeals Court in Arizona on Tuesday upheld a lower court decision extending the federal ban on using autodialers to call cell phones to sending text messages to cell phones.“This ruling is a ‘win’ for consumers,” said Erin McGee, spokesperson for CTIA – the Wireless Association, an international nonprofit membership organization representing all sectors of wireless communications – cellular, personal communication services and enhanced specialized mobile radio.
Community News

Greed Is Going to Jail: Ex-Tyco Execs Sentenced

Former Tyco International CEO L. Dennis Kozlowski, whose lavish lifestyle has come to symbolize corporate greed, was sentenced Monday to 8 to 25 years in prison. He has also been ordered to pay $167 million in restitution and fines. Former Tyco CFO Mark H. Swartz, was also sentenced to 8 to 25 years but only owes $72 million in fines and restitution. Both men were taken immediately into custody.

CORRECTION: Tax Court Make Decisions For and Against Taxpayers

The prospect of delaying tax collections by using frivolous court cases is not a good tactic. The U.S. Tax Court levied penalties totaling $117,500 from 2004 up to now. The Seattle Times reports that taxpayer penalties since 2001 now total $378,900. Tax court cases are sometimes appealed to higher courts but even federal appeals courts have upheld earlier Tax Court decisions and imposed steep penalties.


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