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Justice Department Accuses KPMG of Withholding Documents From IRS

Dec 11, 2003 |

This week, the Justice Department accused KPMG LLP of hiding documents from the IRS in order to cover up tax-sheltering activities, according to the Wall Street Journal. The investigations panel of the Senate Governmental Affairs Committee took more than a year to examine the role of accounting firms, law firms, banks and investment advisers in creating and selling tax avoidance schemes.

KPMG's actions "demonstrate a concerted pattern of obstruction and non-compliance, threatening the integrity of the IRS examination process," the Justice Department said in documents filed Monday in federal court in Washington, D.C., on behalf of the IRS.

The firm recently agreed to settle one of the first cases from the wave of suits filed against them alleging improper tax advice.

In November, KPMG released a statement following a hearing of the U.S. Senate Permanent Subcommittee on Investigations, at which current and former KPMG partners testified on the subject of tax services formerly offered by the firm. This recent filing stems from an investigation by the IRS into whether the firm is liable for penalties as a promoter, mass marketer of potentially abusive tax shelters.

According to the report, The Justice Department is requesting the court to force the firm to hand over all the documents requested, not just those KPMG says aren't covered by privilege. Criminal obstruction-of-justice charges could be filed against the firm, but the Department and court have given no indication that this action will be taken at this point.

In a statement last month, KPMG stated "The fact that the IRS has challenged certain past tax strategies does not render them "illegal" that determination is left to the courts after due process of the law. KPMG does not and will not accept any new engagements for advice and opinions on tax shelters that have been listed and deemed abusive by the IRS."

The statement goes on the say that "KPMG rigorously maintains and protects the integrity of our role as independent auditors. KPMG firmly believes that no actions relating to our past tax strategies in any way risked our role as independent auditors for our clients."

The tax strategies under examination by the Subcommittee were presented at a time when the U.S. economic boom was creating unprecedented individual wealth. That wealth generated demand for tax advice aimed at achieving tax savings. All major accounting firms, including KPMG, as well as prominent law firms, investment advisors and financial institutions offered tax advice, including these types of tax strategies, to clients. It is reported that the firm faces dozens of law suits for the alleged improper tax advice.

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