A federal judge will hear evidence next month to help him decide whether KPMG should be ordered to pick up the legal fees for 16 former employees indicted in connection with the firm's sale of questionably-legal tax shelters.

Judge Lewis Kaplan refused a request by the Big Four firm to toss out the request its by former employees to pay for their defense this. Kaplan has already publicly questioned KPMG's decision to cap the amount of the legal fees it covers for the former partners, saying in June that the firm has regularly paid all costs for its employees in similar situations and urging the workers to file their suit -- further suggesting that the government may have pressured KPMG to stop paying the defendants' legal fees to avoid a potentially fatal indictment of the firm.

A total of 19 people, including lawyers who green lighted the shelters, were indicted on charges of conspiracy and tax evasion. Prosecutors have said that the shelters cost the government some $2.5 billion in taxes.

KPMG entered into a deferred-prosecution agreement nearly a year ago with the Justice Department, agreeing to pay a $456 million fine. The main trial, originally scheduled to begin Sept. 11, has been postponed until January 2007.

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