KPMG Tax Shelter Woes Continue

Big Four firm KPMG has received more setbacks in the firm's quest to clear its name of wrongdoing in the much-publicized tax shelter fraud scandal. Judge T. John Ward of the Federal District Court for the Eastern District of Texas ruled recently that Blips, the name of one of the tax shelters created, marketed, and sold by KPMG and the subject of ongoing legislation against 16 former KPMG employees, is not a legitimate tax shelter.

Blips stands for Bond-Linked Issue Premium Structure. Judge Ward ruled that the shelter is based on fake bank loans provided by Deutsche Bank and that the shelter had no legitimate business purpose.

Analysts indicate that this decision enhances the prosecution's case against the 16 individual former KPMG employees and two other outside consultants who are facing criminal charges relating to the tax shelters. The trial against these 18 defendants is set to begin in September. Five of the defendants have entered guilty pleas.

In a related matter, the judge ruled in favor of two high-profile investors, Harold W. Nix and C. Cary Patterson, who had sued the IRS after their Blips-related deductions were disallowed. The ruling calls for the two investors to pay the taxes on the Blips deductions but absolves them of the hefty penalties that the IRS had assessed.

Meanwhile, U.S. District Judge Loretta A. Preska entered a decision on Tuesday indicating that the IRS will not be required to turn over documentation that could demonstrate that some members of the federal agency did not agree that KPMG should be required to register the tax shelters.

In January of this year, the IRS announced it had dropped charges against KPMG relating to the tax shelter fraud. The announcement was the anticipated result of an earlier court decision. In 2005, KPMG LLP, the U.S. arm of KPMG International, was accused of fraud relating to the marketing of abusive tax shelters. Rather than facing criminal prosecution in what has been described as the largest criminal tax case ever filed, KPMG entered into a deferred prosecution agreement (DPA) with the IRS.

Among many penalties and restrictions, the agreement called for KPMG to pay a hefty fine of $456 million, cease its private client tax practice, admit that it defrauded the government and the IRS, and agree not to develop, sell, or implement any pre-packaged tax products.

You may like these other stories...

With tomorrow being Tax Day, you might see some procrastinators at your office filling out forms, printing out paperwork, or getting last-minute tax advice from their accountant so they can meet the IRS’s filing...
You can read volumes on how to manage an accounting practice. But if you want the quick version, just read the following four points. Everything else is just commentary.  (These points come out of the 1997 book, The...
There is a growing trend of accountants moving away from traditional compliance work to more advisory work. Client demand is there, but it is up to the accountants to capitalize on that. What should accountants' roles be...

Upcoming CPE Webinars

Apr 17
In this exciting presentation Excel expert David H. Ringstrom, CPA shares tricks that you can use with pivot tables every day. Remember, either you work Excel, or it works you!
Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.