The KPMG Tax Shelter Prosecutions

The DPA requires KPMG to pay a criminal fine of $128 million, restitution to the IRS of $228 million, and an IRS penalty of $100 million — a total of $456 million, to be paid by Dec. 21, 2006. These payments will not be tax deductible nor covered by insurance. The criminal charge will be dismissed on Dec. 31, 2006, if KPMG complies with the stringent terms and conditions of the DPA. These include:

• Restrictions and elevated standards for tax practice;
• Full cooperation with the government's ongoing investigation;
• The tolling of the statute of limitations;
• Maintaining a compliance and ethics program that meets the criteria of the Sentencing Guidelines;
• An independent monitor to check compliance with the DPA; and
• An IRS closing agreement that provides for enhanced oversight of KPMG's tax practice.

KPMG's global settlement enables it to avoid a criminal conviction that would probably have put it out of business like its former competitor Arthur Andersen LLP.

Prosecution of individuals, however, was not deferred. The government unsealed a single-count, 44-page indictment of eight former KPMG partners, one manager, and a former tax partner in the New York office of a prominent national law firm. They are accused, along with alleged co-conspirators, of participating in “a scheme to defraud the IRS by devising, marketing, and implementing fraudulent tax shelters, by preparing and causing to be prepared, and filing and causing to be filed with the IRS false and fraudulent U.S. individual income tax returns containing the fraudulent tax shelter losses, and by fraudulently concealing from the IRS those shelters.” United States v. Jeffrey Stein, et al., 05 Crim. 888 (S.D.N.Y. August 29, 2005), Indictment '  15.