Federal prosecutors indicted eight former executives of the accounting firm KPMG on Monday on charges of conspiring to defraud the government by selling questionable tax shelters that deprived the Internal Revenue Service of billions of dollars in revenues.
The indictment is the next major step in the Justice Department’s criminal investigation into such tax havens.
It asserts that the former executives, along with an outside tax lawyer, “participated in a scheme to defraud the IRS by devising, marketing and implementing fraudulent tax shelters” and by preparing individual tax returns that concealed those shelters. They then assured people who bought the shelters that they would withstand IRS scrutiny.
Meanwhile, KPMG itself admitted to wrongdoing and agreed, as expected, to pay $456 million, sidestepping a criminal indictment that might have put it out of business. In a 10-page statement submitted in court, the company said: “From 1996 until 2002, KPMG, through its tax partners, assisted high net worth United States citizens to evade United States individual income taxes on billions of dollars in capital gain and ordinary income by developing, promoting and implementing unregistered and fraudulent tax shelters. A number of KPMG tax partners engaged in conduct that was unlawful and fraudulent.”
It added, “This course of conduct was deliberately approved and perpetrated at the highest levels of KPMG’s tax management and involved dozens of KPMG partners and other personnel.”
As expected, the accounting firm also agreed to accept an outside monitor of its operations for at least the next three years.
The company’s admission of guilt may strengthen the government’s case against the company’s former partners and make it trickier for them to defend themselves.
“It is not going to be helpful that the company has admitted wrongdoing,” said William B. Pollard, a partner at Kornstein Veisz Wexler & Pollard. “But exactly what impact, if any, that will ultimately have with the jury, nobody really knows.”