KPMG Defendant Pleads Guilty To Tax Evasion

by Leroy Baker, for LawAndTax-News.com, New York

29 March 2006

In what was described by Internal Revenue Service chief Mark W. Everson as a "watershed event" in the government's ongoing fight against the selling of abusive tax shelters, one of the 17 defendants in the KPMG case on Tuesday told a New York court that he was entering a guilty plea.

David Rivkin, a San Diego partner in KPMG's "innovative strategies," group told US District Judge Lewis Kaplan that he was pleading guilty to one count of tax evasion and one count of conspiracy.

Rivkin admitted to conspiring to help clients with more than $20 million each in income or capital gains to "keep the money for themselves instead of paying taxes they owed," and wrote letters for clients testifying to the legitimacy of the shelters in the event of an IRS inquiry.

Court documents described how Rivkin's clients were advised to invest money though Cayman Islands entities or through foreign currency transactions.

The tax revenues loss to government as a result of shelters he sold to nine clients is believed to amount to about $235 million.

Rivkin's plea was surprising because he, along with the other defendants, filed motions challenging the government's case only two months ago.

It is thought that the plea could be a crucial turning point in what has been described as one of the largest criminal cases in US legal history and Ravkin's cooperation may help federal prosecutors in building a case against the remaining defendants.

The guilty plea could also help prosecutors to their widen their inquiry into other accounting firms, banks and law firms which are alleged to have assisted KPMG's clients in evading taxes.

In August 2005, KPMG agreed to pay $456 million in penalties to cover former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy.

Other defendants in the case include John Lanning, a former vice chairman; Jeffrey Stein, a former deputy chairman; Richard Rosenthal, a former chief financial officer; and Steven Gremminger, a senior lawyer for KPMG.

Welcoming the news, IRS Commissioner Mark Everson told a meeting of the Tax Executives Institute in Washington that Rivkin's guilty plea was a "watershed event" and a "very significant development" in the government's ongoing investigation.

Rivkin faces a prison term of up to five years for each of the two counts, although federal prosecutors may recommend a more lenient sentence in exchange for his cooperation.

Rivkin is due to be sentenced on February 9, 2007.

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