A federal judge in New York has ruled that the Internal Revenue Service will not have to release documents that defendants in the KPMG tax shelter case claim reveal that some IRS personnel did not believe the Big Four firm was required to register the shelters.
In her ruling, U.S. District Judge Loretta A. Preska wrote that the issue of whether or not the so-called Blips shelter should have been registered is beside the point. “While the indictment does allege that the defendants tried to conceal the true facts from the IRS and a Senate investigating committee by a number of means, failure to register shelters was only one of them … I am unpersuaded that ordering disclosure of the remaining categories of material sought by the defendants is necessary or appropriate in the interests of sound case management,” Preska wrote.
Seven former KPMG executives, facing individual criminal charges, had asked the judge to reconsider her January dismissal of a criminal conspiracy charge against the firm. Charges are still pending against a total of 16 former KPMG executives and two outside consultants who marketed and approved the sales of the questionably legal shelters. A handful of defendants have pleaded guilty to charges, and a trial is set for September.
In August 2005, prosecutors began criminal cases against KPMG and its former executives. The firm agreed to pay $456 million and submit to oversight by an independent monitor for three years, and in return, prosecutors said they would drop the charge after the close of 2006. The individual defendants are engaged in a battle with their former employer over whether the firm will pick up the tab for legal fees, and Preska suggested that the attempt to get the IRS documents released was part of an effort to, “gain some advantage in their civil suits against KPMG in another forum.”
Separately, last week a federal court of appeals in San Francisco dismissed consumer fraud claims in another KPMG shelter case. Theodore Swartz had filed a lawsuit against KPMG and law firm Sidley Austin Brown & Wood and a number of banks saying that they should have known the IRS would not allow the use of a Blips shelter to offset $18 million in capital gains from the sale of a business.
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