KPMG says it âregrets its participationâ in four tax shelters studied by a Senate subcommittee, which on Thursday released new details about how the accounting firm developed and sold the products being investigated.
The Permanent Subcommittee on Investigations, in its second report on questionable tax shelters, noted that a KPMG senior executive said in a 2003 hearing that the firm did not have the technical capability to track sales and revenues from the tax shelter sales, the New York Times reported. However, the subcommittee obtained a June 2001 document from KPMG, showing how the firm categorized revenues by six geographic regions for a questionable shelter called SC2, or S-Corporation Charitable Contribution Strategy. The IRS banned SC2 early last year.
The document stated that total SC2 revenue from April 2000 to mid-2001 was $20.1 million. Another KPMG document showed the Tax Services Practice earned $829 million in fiscal year 1998, which increased to $1.2 billion in fiscal year 2001.
In a statement Thursday, KPMG said that while the new report "acknowledges cultural, structural and institutional changes to KPMG's tax practices" in recent years, KPMG "nevertheless regrets its participation in them." KPMG spokesman George Ledwith said âthemâ referred to the four tax shelters examined by the subcommittee in late 2003. The Justice Department and the Internal Revenue Service are investigating KPMG, which is cooperating.
The new report also said that the $10 billion Los Angeles Department of Fire and Police Pensions and the $400 million Austin Fire Fighters Relief and Retirement Fund in Texas participated in more than half of KPMG's 58 deals for SC2 from 1999 to 2002.
The report proposed that federal bank regulators, working with the IRS, review and monitor tax shelter activity at major banks and that the Securities and Exchange Commission do the same for investment advisory and securities firms.