Prosecutors have decided not to appeal the dismissal of charges against 13 defendants in the KPMG tax shelter case to the U.S. Supreme Court.

The deadline for appealing the case to the Supreme Court expired this week. Charges against 13 of the 19 defendants in the case were dismissed in July 2007. Judge Lewis Kaplan faulted prosecutors for pressuring KPMG not to pay the legal bills of the defendants (see Judge Drops KPMG Charges). An appeals court upheld that decision last August. Two other defendants have pleaded guilty in the case, and another four are currently on trial in New York.

When prosecutors first announced the case against 17 of the defendants in 2005, it was touted as the largest tax shelter case ever, with charges of conspiracy, tax evasion and fraud. KPMG allegedly marketed the tax shelters to clients to help them evade $2.5 billion in tax liabilities by generating at least $11 billion in phony tax losses. The firm agreed to pay $456 million in August 2005 to avoid prosecution and pledged to change its operations.

Among those whose charges were dismissed were Jeffrey Stein, a former deputy chairman of KPMG. However, two former KPMG employees are among the four currently on trial in New York: former tax partner Robert Pfaff and former senior tax manager John Larson.

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