KPMG Feels Tax Shelter Heat on Several Fronts

Big Four accounting firm KPMG is in the spotlight this week as media focus turned to several incidents regarding KPMG's alleged misconduct with selling tax shelters.

KPMG E-Mails Raise Concerns Over Tax Shelters

The Wall Street Journal is reporting today that internal KPMG e-mails show evidence of knowledge about possible flaws in various tax shelter products more than a year before they stopped selling the tax shelters in question. One of the e-mails indicates that a senior tax partner in the firm's technical tax group "determined that KPMG should discontinue marketing the existing product" months before it actually discontinued its practice. The shelter, known as the "KPMG FLIP/OPIS"-type strategy, was allegedly sold to over 160 clients nationwide.

In a statement Tuesday, KPMG said it "would not comment on internal correspondence, particularly five-year-old memos offering an individual point of view on a complex topic that can be taken out of context and misinterpreted."

KPMG Senior Manager Sues Over Reassignment

Michael Hamersley, a senior manager with KPMG in Los Angeles, has sued the firm for putting him on administrative leave after he allegedly refused to endorse and sign-off on what he believed was an illegal tax shelter for an audit client. He began cooperating with federal investigators about possibly illegal tax shelters, and was allegedly "defamed" by KPMG and derailed from the partner track unless he changed his mind and signed off on the tax shelter. The suit was filed in Los Angeles Superior Court on Monday.

"We don't comment on litigation matters," Tim Connolly, a spokesman for KPMG, said.

Seattle Businessman Sues KPMG Over Tax Shelter Advice

Earlier this month, a Seattle businessman became the latest plaintiff in tax shelter cases against KPMG when he sued the firm for "peddling a 'sham' tax-shelter scheme" which purportedly cost him millions of dollars. At question is whether KPMG was selling tax shelters that had already been disallowed by the IRS. Theodore C. Swartz, the businessman who is suing KPMG, is seeking $25 million in damages.

KPMG indicated that its tax shelters are "fully supported by the Internal Revenue Service and related regulations." Of the Swartz lawsuit, the firm said, "We stand by the advice given in this case. We consider the suit to be without merit."

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