KPMG Ordered to Turn Over Client Documents

The IRS' ongoing quest to clamp down on illegal tax shelters continues in earnest. A federal judge in Washington has ordered KPMG to turn over client files relating to certain tax shelters to a magistrate to determine if they should be handed over to the IRS - files that KPMG had vigorously argued were confidential.

After reviewing a sample of 30 of the documents in question, the court determined that the documents were used in preparation of a tax return, and therefore didn't meet the more stringent client confidentiality test. "The court is not confident that KPMG's privilege log is supportable," Judge Thomas Hogan said in his order.

According to the Wall Street Journal, KPMG must now turn over the documents they had previously withheld, and a federal magistrate will determine which ones may be deemed confidential prior to turning them over to the IRS. According to the Journal, KPMG had already turned over more than 400 boxes of documents to the court.

A spokesman for KPMG has indicated, "Based upon the Court's ruling, there is not yet a final determination in this matter. The privilege claims have been referred to a magistrate judge for review. The IRS enforcement proceeding is 'held in abeyance,' pending the outcome of the magistrate's findings."

The IRS has not publicly estimated the amount involved in the KPMG investigation.

The IRS decision to investigate tax shelter records has touched a number of large CPA firms, and has been a big initiative in 2002. "IRS Turns up The Heat on Tax Cheats" was named as one of AccountingWEB's top trends of 2002.

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