KPMG Ordered to Hand Over Tax Shelter Client Names

Like other firms that steered clients toward questionable tax shelters, KPMG has been ordered by a federal judge to disclose the names of clients who participated, Reuters reported.

The KPMG case is just one of many currently under way in which government investigators are going to court to get the names of clients who stashed money in the questionable shelters to avoid paying federal taxes.

The problem for KPMG and others who gave tax shelter advice is that when they disclose their clients’ names, the Internal Revenue Service then aggressively pursues the clients who then sue the firms for giving them the bad advice in the first place.

In April, a federal judge upheld IRS efforts to obtain the names of two tax shelter clients of accounting firm KPMG, according to the New York Times. Tax shelter strategies gone bad are causing heartburn for numerous accounting and law firms.

Yesterday, we reported that settlement papers filed as part of a class-action suit show that the number of clients steered toward illegal tax shelters by Dallas law firm Jenkens & Gilchrist is more like 1,100—nearly double the number previously cited by the Internal Revenue Service, the New York Times reported. The IRS is seeking the list of names of those who participated.

The papers say that from 1999 through 2003, Jenkens & Gilchrist "issued opinion letters to over 1,100 clients who reside in 41 states," the Times reported, citing court documents.

In December we reported that four Indiana residents along with 45 other clients of E&Y sued the Big Four firm for $1 billion, alleging that the firm induced them into entering into what were known to be illegal tax shelters. In addition to paying $3 million in fees to E&Y, participants in the lawsuit paid $75,000 each for a letter from a law firm attesting to the propriety of the shelter.

This week Chicago law firm Sidley Austin Brown & Wood was ordered by a federal judge to turn over the names of 46 former tax shelter clients. The 46 clients do not want their names divulged, the Chicago Sun-Times reported.

In this week’s action ordering KPMG to name names, U.S. District Judge Thomas Hogan granted a motion sought by the government to force KPMG to comply with nine Internal Revenue Service summonses issued between January and May 2002 in connection with a wide-ranging probe of tax shelters, Reuters reported. "KPMG appears to have withheld documents summoned by the IRS by incorrectly describing the documents to support dubious claims of privilege," Hogan wrote in a legal opinion.

"We're reviewing the order and opinion of the court," Tim Connolly, a spokesman for KPMG, told Reuters. KMPG no longer offers the tax shelters in question. A lawyer for the firm in Washington could not immediately be reached for comment, Reuters reported.

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