Tax
KPMG Gets Huge Fine over Tax Shelter Scandal
The US’s fourth-largest accounting firm, KPMG, has agreed to pay $456 million to avoid criminal prosecution by the US government over abusiv...
The US’s fourth-largest accounting firm, KPMG, has agreed to pay $456 million to avoid criminal prosecution by the US government over abusive tax shelters in what is known as a deferred prosecution.
Under the deal, approved by US District Judge Loretta Preska in New York City, KPMG will be placed under an independent monitor for three years to ensure compliance and will adopt tougher standards for issuing tax opinions.
Eight former KPMG partners and an external lawyer were accused of tax-shelter fraud and are due to be arraigned tomorrow.
In a statement presented in court by the government, KPMG assisted wealthy clients in evading ``income taxes on billions of dollars in capital and ordinary income'' through ``fraudulent tax shelters,'' from 1996 until 2002.
KPMG admitted in court that it committed fraud in designing the tax shelters and that it attempted to conceal the shelters from the Internal Revenue Service. Under the deferred prosecution charges against the firm, charges will be dropped if it complies with the settlement, which will remain in force until the end of 2006. Failure to comply would mean prosecution for the firm.
Also under the settlement KPMG must not take on new individual clients for 30 days and any tax opinions given to clients must be likely to survive an IRS audit. The previous standard required that the advice be ``more likely than not'' to win IRS approval.
KPMG has paid the price for initially taking a hard line in responding to the US government's investigation of tax shelter schemes. Other large accounting firms such as PricewaterhouseCoopers and Ernst & Young have paid less than 5 per cent of KPMG's fine to resolve US investigations of their firms.
The settlement will mean, though, that for at least the time being, KPMG's US business will avoid the fate of Arthur Andersen, which collapsed in 2002 after being accused by federal prosecutors of obstructing an investigation into its audit client, Enron Corp, the bankrupt Houston-based energy company.
