New York (April 21, 2004) -- Big Four firm KPMG confirmed plans to jettison up to 140 managers from its tax practice unit -- a signal that the tax practice model of national firms may be shifting as a result of regulatory reform and a dip in client demand.

The furloughs will be practice-wide in terms of locations and will include about 30 partners.

In a statement, KPMG said, "We are continually adjusting our resources, including our staff, against demand in the new tax marketplace, to serve client needs and also achieve operating efficiencies." The firm added that despite the reductions, its tax practice strategy remains unchanged.

KPMG has more than 500 partners in its tax unit. According to the 2004 Accounting Today Top 100 Firms report, KPMG generated $1.252 billion from its tax arm, about one-third of its total U.S. revenues of $3.7 billion. In the prior year's Top 100 survey, KPMG's tax arm accounted for some 36 percent of the firm's then-aggregate domestic revenues of $3.4 billion.

Tax practices, particularly those of several of the larger accounting firms, have come under increased scrutiny by regulators over the marketing of controversial tax shelter products. KPMG and other firms, including Ernst & Young and BDO Seidman, have been the subject of Internal Revenue Service investigations into their respective tax shelter strategies. Last year, Ernst paid $15 million to settle with the IRS.

An Ernst & Young spokesman acknowledged that that firm's tax unit had also "experienced some attrition," adding, however, that the departure levels were in line with those of the past several years. "It's more the economy than anything," he said. "We settled our differences with the IRS and we're very future-focused at this point."

A published report said that Deloitte & Touche has slashed several hundred senior-level tax posts. Calls to the firm were not returned by press time.

KPMG's downsizing comes shortly after the firm reshuffled its tax arm, naming veteran Joseph Mauriello as deputy chairman of its U.S. audit, tax and advisory firm. Mauriello succeeded Jeff Stein, who retired in January, while two other top-level executives were reassigned.

-- Bill Carlino

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