Tax Shelters Once Again Under Scrutiny by Senate, PCAOB

A KPMG senior manager testified at a Senate Finance Committee hearing on Tuesday that his refusal to sign off on an audit client’s questionable tax transactions hurt his career at the Big Four firm. Michael Hamersley, a five-year KPMG employee, filed suit against the company in June and the case is pending. He is on administrative leave.

The testimony came the same day as Public Company Accounting Oversight Board (PCAOB) Chairman William McDonough testified that the board plans to ramp up its look at tax shelters and the role auditors play in certifying questionable tax transactions to improve their client’s financial picture.

Last month, McDonough indicated that PCAOB would be looking at whether to limit the tax services accounting firms can provide to audit clients. His comments on Tuesday indicate that the board plans to go a step further saying its annual inspections of accounting companies will examine how they audit and structure "questionable, tax-orientated transactions," according to the Wall Street Journal. The board will also investigate how firm compensation plans may encourage such activity by staff.

Hamersley’s case illustrates the issue. He claims he "witnessed a host of abusive tax-shelter practices" while at KPMG. The company has filed a motion to dismiss the suit. In a statement, the company said, "He is simply not qualified to reach the purely personal opinions he espouses about alleged improper or so-called abusive activity." KPMG added: "His conclusions are simply wrong."

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