The government got a big victory in the U.S. Court of Federal Claims, winning a reversal of a 2004 decision. The court's decision against Coltec Industries Inc. is a notable decision in the war over corporate tax shelters. In 1996, Coltec reported a capital loss of more than $378 million on its tax return - a loss generated by the company selling high-basis stock for a relatively low price. Now-defunct accounting firm Arthur Andersen suggested, and signed off on, the strategy.The Internal Revenue Service disallowed the loss and assessed additional taxes; Coltec then followed its payment by promptly filing a refund action for more than $82 million. In 2004, the U.S. Court of Federal Claims awarded Coltec a full refund. In the appeal decision, the court ruled that although Coltec's claimed capital loss fell within the literal terms of the statute, the transaction that created the high basis in the stock lacked economic substance and therefore must be disregarded for tax purposes. However, the court did say that the company could be entitled to a partial refund on the sale of stock with a basis of approximately $4 million for a price of $500,000.
Ex-KPMG partners sue for fees
New York - Following a judge's suggestion, 16 former KPMG partners facing charges over their role in selling questionable tax shelters are suing the Big Four firm for legal fees.
In late June, Judge Lewis Kaplan ruled that prosecutors had wrongly pressured the firm to cut those fees off and invited the defendants to submit claims for past and future legal bills in the case. According to the complaint, KPMG broke an "implied contract" to advance fees, based on the firm's practice of doing so in past civil, regulatory and criminal cases and prosecutions. In August 2005, the firm agreed to pay $456 million to avoid prosecution over its sale of abusive tax shelters and threatened to fire workers who didn't cooperate with investigators. KPMG has a longstanding policy of covering workers' legal costs.
The defendants' trial is slated to begin on Sept. 11, but several of the defendants have requested a four-month delay.
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