KPMG Tax Shelter Trial Postponed Over Legal Fees Dispute

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

16 November 2006

The trial of former employees of the accounting firm KPMG in a criminal tax shelter case has been delayed indefinitely after the trial judge cited concerns over a separate dispute concerning who should pay the defendants' lawyers.

In an order made public Tuesday, US District Judge Lewis A. Kaplan stated that questions over whether KPMG should pay legal fees for the former executives probably won't be resolved before the criminal trial's scheduled start date in January.

"Given all of the current uncertainties, it is impossible now to predict with confidence when the charges in the indictment may be tried," he said.

Consequently, the judge delayed the trial date. A hearing to consider possible trial dates has been set for December 20.

The 16 former KPMG employees and two others are accused of selling tax shelters which were deemed "abusive" by the Internal Revenue Service. The agency has estimated that the tax shelters helped investors avoid some $2.5 billion in 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.

However, the trial bogged down when in June, Judge Kaplan found that prosecutors violated the constitutional rights of the former KPMG partners by pressurising them to cut off payment of legal costs to the defense. The former executives then filed a civil complaint against KPMG seeking advancement of defense costs.

A trial on the fee issue was scheduled for October, but KPMG appealed Kaplan's ruling. The 2nd Circuit Court of Appeals is expected to hear arguments on KPMG's motion next week.

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