The tax shelter trial of three former KPMG executives and an outside attorney began in a New York courtroom Wednesday, but with most of the original defendants no longer present.

The case was once billed as the biggest tax shelter case ever prosecuted. However, Judge Lewis Kaplan dismissed charges against 13 of the original defendants in July 2007, including former deputy chairman Jeffrey Stein, after he ruled that prosecutors had exerted undue pressure on KPMG to stop paying for their defense, thereby limiting their legal options and violating their constitutional rights (see Appeals Court Affirms Dismissal of KPMG Indictments). Two other defendants have pleaded guilty and at least one is expected to testify against his former co-defendants. The remaining defendants are former KPMG executives David Greenberg, John Larson and Robert Pfaff, and tax attorney Raymond J. Ruble of the law firm Sidley Austin.

The case appeared to be going to trial last October, but Kaplan postponed the proceedings amid claims that one of the defense lawyers had a conflict of interest. More recently, defense lawyers have been fighting attempts by the prosecution to present charts showing billions of dollars in taxes evaded by 600 KPMG clients who bought the tax shelters, according to The New York Times. The defense lawyers claim the charts are based on IRS information that was not shared with them.

In other KPMG news, the Public Company Accounting Oversight Board issued an inspection report citing deficiencies with its Canadian member firm, KPMG LLP (Canada) in 2007. The PCAOB found deficiencies in the Canadian firm's audits of four clients, including one that said the firm did not substantively test the completeness of the amount of the overpayments claimed by one client and did not adequately test the value of derivative instruments for another client.

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