- The Washington Times - Wednesday, July 10, 2002

The Justice Department yesterday filed a lawsuit in federal court in Washington against accounting giant KPMG LLP, asking the court to force the firm to disclose information to the Internal Revenue Service about tax shelters it has marketed since 1998.

In a similar lawsuit filed in Chicago, the department asked the federal court there to enforce summonses issued to the public accounting firm of BDO Seidman LLP for information on its marketing of tax shelters since 1995.

The federal tax code requires promoters of tax shelters to register each one with the IRS before offering it for sale. It also requires promoters and sellers of certain tax shelters to keep lists of all investors and to make the lists available to the IRS on 10 days' notice.

Justice Department officials said those who do not register the tax shelters or maintain or produce the lists may be liable for penalties. The tax code also imposes penalties for promoting abuse of tax shelters.

The IRS has been trying to restrict use of sophisticated accounting by companies to evade taxes, a problem the Treasury Department has said costs the U.S. $10 billion annually. PricewaterhouseCoopers LLP, the largest accounting firm, in June agreed to make a "substantial payment" to the IRS for promoting some shelters and to tell the agency about clients who used them.

"Certain tax-shelter transactions are devised to exploit the complexity of the tax law to claim benefits Congress never intended," said Assistant Attorney General Eileen J. O'Connor, who heads the department's tax division.

"The Justice Department is working with the IRS in its efforts to root out and shut down abusive tax-shelter promotions," she said.

According to the court filings, KPMG did not provide documents the IRS requested in connection with its investigation into the firm's compliance with federal requirements and its potential liability for penalties.

Although KPMG has given many documents to the IRS, the department said the firm also withheld a substantial number of specific records the government requested.

KPMG spokesman George Ledwith said that the company has "worked cooperatively with the IRS" and that it has "legitimate disputes with the IRS about these summonses."

In Chicago, the government wants information from BDO Seidman concerning tax-shelter transactions it believes BDO Seidman marketed. BDO has denied any wrongdoing.

"It is unacceptable for those holding themselves out as tax professionals providing legitimate tax advice to refuse to comply with legal disclosure requirements," IRS Commissioner Charles O. Rossotti said. "The U.S. tax system is based on the principle of responsible self-assessment by taxpayers and responsible tax advice by tax professionals. It is not a game of hide-and-seek with the IRS," he said.

KPMG employs more than 10,000 workers and serves 2,500 clients in both the public and private sectors. Its annual revenue is more than $2 billion.

BDO Seidman is a tax-consulting firm providing services to private and publicly traded businesses. It has 35 offices and 175 alliance firm locations nationwide.

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