South Carolina regulators are reportedly mulling disciplinary action against KPMG LLP over the firm's past sales of allegedly abusive tax shelters.

State Department of Revenue officials are nearing a decision on whether to bar the Big Four firm from representing taxpayers in controversies before the DOR, The Wall Street Journal reported. The duration of a bar, which would mark the first disciplinary action against KPMG by a government body, could be either temporary or permanent, the Journal said. A decision could come this month.

KPMG's past tax shelter activities are the subject of a criminal investigation in New York.

A letter from the South Carolina revenue department, which accompanied a subpoena issued to a former KPMG client, said that the probe "centers on KPMG's conduct in the sale of certain tax shelters, principally FLIP and OPIS, to residents of this state," according to the report. Both shelters were declared abusive by the Internal Revenue Service.

At issue is whether KPMG violated state laws barring tax practitioners from charging contingent fees, which are based on a percentage of the savings or refund to the client, for preparing a client's original state income tax return, the Journal reported. The state's investigation is also looking at whether KPMG violated state law by instructing some clients that they weren't permitted to consult outside tax professionals for advice on KPMG's strategies, according to the report.

While South Carolina revenue department director Burnet Maybank told the newspaper that his department is investigating multiple firms over tax shelter sales and had notified a Big Four firm that it could be barred, he wouldn't comment when asked if the firm was KPMG.

Burnet told the Journal that generally, if a firm is barred from representing taxpayers in disputes before state officials, it probably would still be permitted to provide tax advice and file tax returns for South Carolina residents. The report noted that such a bar wouldn't affect a firm's audit operations or its license to practice accountancy in the state.

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