Negotiations are continuing between federal prosecutors and KPMG, and an indictment of the firm for its role in selling tax shelters appears to have been ruled out, according to published reports.

The Big Four firm may avoid the sort of criminal charges that led to the demise of Arthur Andersen, Enron's auditor, but KPMG could still face fines up to $500 million. Reports out of Washington have said in recent weeks that the Bush administration is leery of the demise of another major accounting firm. An independent monitor of the firm's conduct would likely be put in place as part of any deal, and the firm would have to admit guilt publicly.

KPMG has already fired more than a dozen partners with ties to tax shelter marketing in the late 1990s, and in June, the firm released a statement acknowledging "unlawful activity" by former partners. Individual partners may still face indictment. In January 2004, KPMG announced congressional scrutiny into its past shelter activities after a November 2003 report compiled by a Senate Government Affairs Subcommittee showed that KPMG collected roughly $124 million in fees from shelters from 1997 through 2001. Investigators have said the shelters may have cost the government more than $1.4 billion in taxes.

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