KPMG Tax Shelter Settlement May Stall

by Glen Shapiro, LawAndTax-News.com, New York

09 January 2006

According to reports in the US media, the settlement proposed by KPMG for investors harmed by its recommendation of several tax sheltering arrangements later deemed abusive by the IRS, may be derailed by the failure of an undiclosed number of affected investors to participate.

Ruling in November, US District Judge Dennis M. Cavanaugh granted preliminary approval to the $225 million settlement proposed by the accounting firm.

The proposed settlement is designed to cover former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy. These are the shelters that were the subject of KPMG's settlement agreement with federal prosecutors in August under which KPMG agreed to pay $456 million in penalties, but won't face criminal prosecution as long as it complies with the terms of its agreement.

However, according to a New York Times report, a number of the class action participants, representing 30% of the claims addressed by the settlement, last month declined to participate in the agreement.

KPMG reportedly has the right to junk the settlement proposals if not enough of the affected investors participate. However, neither the accounting firm nor its legal representatives, Milberg, Weiss Bershad & Schulman would comment to the New York Times on the matter.

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