Approval of the $195 million settlement between KPMG and investors in possibly illegal tax shelters has stalled, as the sides reportedly renegotiate the terms of the deal.

KPMG attorneys filed papers in federal court in Newark, N.J. saying that the class-action settlement, preliminarily agreed to in September 2005, had been opted out of by more investors that originally assumed. Reports have said that more than 60 of 284 eligible investors rejected the terms of the deal and New York law firm Milberg Weiss Bershad & Schulman, which brokered the deal, is trying to persuade people who opted out to rejoin the case.

KPMG has the right to call off the deal if too many investors opt out, and the firm could instead challenge the claims individually.

A federal judge postponed approval of the settlement and didn't put a deadline on coming to an agreement. The settlement covers four tax shelters offered by KPMG, which the Internal Revenue Service has said are abusive and helped the 600 taxpayers who bought them avoid about $2.5 billion in taxes.

Sidley Austin Brown & Wood, the law firm that provided legal opinion letters supporting the shelters, is paying about 20 percent of the settlement.

The reported average payout was expected to be about $750,000. The remaining $30 million would 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. Former clients have since brought dozen of lawsuits against KPMG.

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