Charlotte-based bank Wachovia is being sued for damages by a Florida entrepreneur who blames the bank for steering him into what the Internal Revenue Service deemed an abusive tax shelter. With penalties and interest, his IRS bill topped $10 million.

The lawsuit, filed this week in the 12th Circuit Court in Sarasota County, alleges that Wachovia committed "deliberate fraud" by concealing its relationship with the firm that recommended the tax shelter.

Entrepreneur Paul Hostetler sold his majority stake in PGT Industries in 2001. According to the lawsuit, the sale resulted in an "immediate, large taxable gain" for Mr Hostetler and two trusts he had set up for his children. The sale price was never disclosed.

The lawsuit claims Wachovia, where Hostetler was already a client, directed Hostetler to KPMG, the accounting and consulting firm, for tax advice and planning. Wachovia took a $520,000 referral fee from KPMG.

KPMG sold Mr Hostetler a tax strategy called Family Office Customised Partnership, or FOCUS, that was supposed to be a "legal and legitimate way" to minimise the taxes from the PGT sale, the suit states.

The strategy, which KPMG also sold to other clients, utilised a tax loss that had already been sustained by shell companies prior to the taxpayer's entry into the transaction.

The IRS later decided that FOCUS was an abusive tax shelter. By disallowing that tax loss, the IRS found Mr Hostetler and the two trusts liable for $8 million in delinquent taxes, plus interest and penalties.

Mr Hostetler is suing Wachovia for damages and is also seeking compensation for more than $7 million he claims he lost in investments recommended by the bank's Wachovia Securities brokerage unit. He says the bank was negligent in the way it supervised his accounts, placing him in inappropriate variable annuities.

Mr Hostetler previously reached a settlement with KPMG.

A Wachovia spokeswoman said the bank would not comment on pending litigation.