Treasury Admits Mistake in Naming KPMG's Tax Clients

In a letter to the editor of the Wall Street Journal, Treasury Department General Counsel David D. Aufhauser admitted that prudent measures to protect taxpayers' privacy were not in place when the names of KPMG's clients were revealed by the Department of Justice (DOJ) last week. "The absence of such measures," he said, "is inexcusable."

In an editorial published on July 17, 2002, the Wall Street Journal said the IRS was "out of control" when it presumed the right to gratuitously humiliate innocent taxpayers in the process of auditing, suing and penalizing tax cheats. "These individuals are accused of no wrongdoing," wrote the Journal. "Their only sin is that they are clients of KPMG, the accounting firm currently doing battle in court with the IRS."

Mr. Aufhauser said the Treasury Department agrees that no taxpayer should be "gratuitously humiliated" in court proceedings. Normally, he said, Treasury takes purposeful measures in Tax Court to preserve confidences. But this case was different in that it involved the seeking of information through an administrative summons. He claims KPMG and BDO Seidman both defied the summons with a dubious assertion of common law privilege. When KPMG submitted a "privilege log" that identified clients of the firm, the IRS asked the DOJ to enforce the summons and submitted the log in support of its federal court petition. The DOJ subsequently disclosed the log in support of the IRS's petition.

Although he emphasized that the naming of names is not a violation of law, Mr. Aufhauser promised that, "all future referrals from Treasury to Justice will require appropriate protections, unless the interests of justice clearly dictate otherwise."

-Rosemary Schlank

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