New York (Aug. 30, 2004) -- A Senate subcommittee has revealed internal e-mail messages showing that KPMG reportedly discussed selling a new tax shelter similar to one that was banned more than two years earlier by the Internal Revenue Service, according to published reports about the newly disclosed internal e-mail messages.
KPMG is under scrutiny by the Internal Revenue Service and the Justice Department for its past promotion of abusive tax shelters. The Montvale, N.J.-based firm also faces a federal grand jury investigation in Manhattan and several investor lawsuits related to its past shelter activities.
According to The New York Times, the e-mails, released by a Senate subcommittee investigating abusive tax shelters last week, don't show whether KPMG ever sold the new version of the old shelter, Offshore Portfolio Investment Strategy, or OPIS, but the messages do show how the firm's efforts to create and sell dozens of tax shelters appear "much more rigorous and extensive" than detailed in documents made public last fall by the Senate Permanent Subcommittee on Investigations, the Times said.
In a hearing on tax shelters held last November, the Senate Permanent Subcommittee on Investigations reported that KPMG earned $124 million in fees from four tax shelters that were deemed abusive.
KPMG spokesman Tom Fitzgerald said, "KPMG has taken strong measures to reorganize and restructure its tax practice, including changes to leadership, policies, practices and procedures. Simply put, we are not doing today what we did years ago."
The e-mail messages, which date from the mid-1990s to 2003, are said to refer to at least a dozen new tax shelters that appear aggressive in their reading of the tax code. According to the Times, the IRS declared the OPIS and similar variations, which used complex financial moves to create paper losses that then offset in whole or in part legitimate taxable income, invalid in August 2001.
A May 2003 e-message by a KPMG tax partner said that the new version of OPIS was designed to do the same thing using United States partnerships rather than foreign limited partnerships for certain parts of the transaction, according to the paper.
As part of a larger goal of establishing what the firm called an "investment banking model," in which it would join with investment boutiques and large banks for access to financing needed for certain shelters for extremely wealthy individuals, the e-mails show that KPMG engaged in exhaustive legal analysis of tax and civil court rulings and IRS rulings to find loopholes in the tax code to justify its shelters, according to the Times, which cited a KPMG slide presentation as saying, "The IRS position of what is 'final' is not 'real world view.'"
-- WebCPA staff
