US Court Upheld KPMG Tax Avoidance Case

Lucas Gilmore, “Big 4″ observer
September 01, 2010 /

Convictions of a lawyer and two ex-employees of KPMG over illegal tax shelter have been upheld by a US appeals court. The court, however, reversed a penalty of $6 million imposed on one of the defendant. This relates to a judgment passed in December 2008 in which John Larson, a former senior tax manager and Robert Pfaff, a former KPMG tax partner were found guilty of tax evasion on 12 counts each whereas Raymond Ruble was found to be guilty on 10 counts of tax evasion.

These three persons are supposed to have promoted a tax shelter strategy named BLIPS (Bond Linked Investment Premium Strategy) in which investors draw illegitimate loans from bank and then transfer the same to some partnership to demand tax losses. By this it means that investors earned more than $20m.

All the above convicted persons received jail sentences. Larson was fined with $6m and Pfaff had to deposit $3m as fine. One former KPMG tax partner was acquitted.

The conviction and the prison sentences have now been upheld but the court decided that the fine imposed on Larson is very high and there was lack of substantial findings to hold up a fine above $3m.The court, therefore, further ordered to recalculate the amount .

The above convictions are only a part of a bigger probe. It is suspected that KPMG had helped wealthy investors to set up doubtful tax shelters to avoid taxes amounting to billions of dollars. US prosecutors once believed that this could be their all time biggest criminal prosecution on tax evasion but they had to retrace their steps when charges against several KPMG defendants were dismissed.

In August 2005, KPMG had concluded a $456m agreement with the government to escape possible criminal tax prosecution.


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