Former KPMG Partners Plead Not Guilty In Tax Case

by Leroy Baker, Tax-News.com, New York

26 October 2005

A group of defendants have pleaded not guilty in a federal court to criminal charges arising from the sale of allegedly abusive tax shelters to wealthy clients by the accounting firm KPMG, including the firm's former chief financial officer.

Sixteen out of a total of 19 defendants, including Richard Rosenthal, previously CFO of KPMG, Jeffrey Stein, former deputy chairman, and Richard Smith, former vice chairman, entered not guilty pleas in a federal court on Monday. Rosenthal was among ten people named in an indictment unsealed in the Manhattan Federal Court last week, adding to the nine others previously indicted in the case.

The accused, most of whom are former KPMG partners, are charged with helping to sell illegal tax shelters to around 350 clients which, the prosecution claims, helped wealthy individuals avoid tax on $2.5 billion in income over the period from 1996 to 2002. KPMG reportedly collected some $128 million in fees for its work.

Two outside lawyers are also accused of tax evasion for writing opinion letters validating the legitimacy of the tax shelters, while three former KPMG partners face additional charges of obstructing an Internal Revenue Service investigation.

In August, KPMG reached an agreement with prosecutors over its sale of abusive tax shelters in what has been described by the government as the largest criminal tax investigation that it has ever undertaken. Under the 'deferred-prosecution' agreement, to remain in effect until 2006, KPMG will pay $456 million and accept an outside monitor of its operations.

The terms of the agreement avoided an indictment of the firm, something that brought down Arthur Andersen in the Enron affair, although charges could still be filed if KPMG breaches the agreement during its 'probation' period of 18 months.

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