KPMG Wins Partial Victory Over IRS In Tax Shelter Investigation

by Mike Godfrey, Tax-News.com, Washington

20 October 2003

The Internal Revenue Service received a blow in its pursuance of a tax shelter case against big-four accounting firm KPMG last week, when a specially appointed Master recommended to a federal court that the company did not have to hand over all the documents requested by the IRS, according to a Wall Street Journal report.

Whilst the decision is seen as a boost to KPMG, which is being investigated by the IRS along with many other accounting and legal firms, it represents a setback for the Revenue in its ongoing campaign to crack down on tax sheltering activities.

Since the IRS went to law last year to enforce 25 summonses that it had sent to KPMG demanding tax sheltering documentation, the firm has handed over hundreds of boxes of paperwork. However, according to the WSJ, KPMG has also withheld many documents, arguing that to lay them open to scrutiny would be to breach client privilege.

Consequently, in December 2002, the Washington DC federal court appointed retired US Magistrate Judge Patrick Attridge to appraise KPMG's claim and examine the documents in question. In his judgement delivered on October 8, Judge Attridge ruled that whilst KPMG must hand over some of the documents, those that contained material covered by client-attorney privilege may be retained by the firm.

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