IRS Points Finger at Andersen

The Internal Revenue Service has filed a petition in the Chicago federal court to force accounting firm Arthur Andersen LLP to produce documents relating to tax shelters sold by the firm. The IRS claims it has evidence that the shelters produced "likely improper tax deductions" for participants and that those deductions ranged from $10 million to $1.6 billion. The IRS indicated that Andersen may be liable for "promoter penalties" for failing to follow IRS rules with regard to the tax shelters the firm sold to clients.

Earlier this year the IRS served 19 summonses to Andersen requesting information about the shelters. The response received from Andersen was inadequate, according to the IRS, thus the current court action.

Andersen spokesperson Patrick Dorton stated that the firm has been most cooperative with the IRS but still needed to protect its clients. "Our firm provided significant amounts of information already to the IRS," he said. "At the same time we need to balance our client confidentiality obligations."

The IRS is examining tax shelter activity between Andersen and its clients for the period 1995 through 2002. The request for enforced action is part of the IRS's ongoing attempt to seek information about and shut down abusive and improper tax shelters. Accounting firms Ernst & Young, KPMG, and BDO Seidman have been in the news recently for their court battles with the IRS.

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