A federal judge gave preliminary approval to a $225 million settlement between KPMG and law firm Milberg Weiss Bershad & Schulman LLP.

The deal covers about 275 former clients of the accounting firm who used questionably legal tax shelters designed by KPMG. The Internal Revenue Service has said that the shelters are abusive and helped the 600 taxpayers who bought them clear about $2.5 billion in taxes.

The Milberg Weiss settlement will provide $195 million compensation to former clients of KPMG and Sidley, Austin, Brown & Wood LLP who participated in the tax shelters known as Blips, Flip and Opis, as well as some former clients who participated in a shelter called Short Option Strategy.

By law, the award cannot cover back taxes and IRS penalties. The reported average payout is expected to be about $750,000, with taxpayers without statute-of-limitation issues receiving back about 65 percent of their fees, while those with issues receiving about 25 percent of their fees. The remaining $30 million will go to Milberg Weiss.KPMG admitted criminal wrongdoing in creating the tax shelters and agreed to pay $456 million in penalties in September, as a grand jury in New York indicted 19 former KPMG executives and a lawyer for Sidley, Austin, Brown & Wood, which worked with KPMG in marketing the shelters. Former clients have since brought dozen of lawsuits against KPMG.

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