Treasury And IRS Apologise For KPMG Tax Shelter Disclosure

by Mike Godfrey, Tax-News.com, Washington

24 July 2002

Top officials from both the US Treasury Department and the Internal Revenue Service have apologised for the disclosure of a list of tax shelter client names during government investigations into international accounting firms KPMG and BDO Seidman.

In separate letters to the Wall Street Journal this week, Chief Counsel to the IRS, John Williams, and Treasury Department General Counsel, David Aufhauser responded to criticisms that the agencies had employed bullying tactics, and caused innocent taxpayers to be 'gratuitously humiliated'.

'We want to reiterate that the fact that the individuals were listed by KPMG on the privilege log filed in this suit does not necessarily mean that these individuals participated in tax shelters,' Mr Williams wrote on Monday.

Mr Aufhauser supported this assertion, stating in the same issue of the WSJ that: 'We, in fact, take purposeful measures in Tax Court litigation to preserve confidences, including, wherever possible, the names of innocent third parties. Documents revealing the identity of third parties are routinely redacted or filed under seal. The same procedures should have controlled the KPMG and BDO Seidman actions filed in federal court by the Department of Justice.'

He added that: 'While the government's filing violates no law and, indeed, honors the principle of transparency in our judicial system, the countervailing interest of third party confidences should have compelled measures intended to protect the identity of third parties,' and condemned the absence of such measures as 'inexcusable'.

Both men promised this week that such a situation will not arise again.

However, the Associated Press reported at the weekend that House Ways and Means Committee Chairman, Bill Thomas has suggested that the release of the names of KPMG clients was deliberate and political, designed to ensure a splash of publicity for the Government's anti-tax shelter initiative:

'The question of when you release names and how you release names oftentimes is not a legal question, it's a political question,' he was quoted as observing.

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