WASHINGTON, D.C. - The Justice Department and Internal Revenue Service (IRS) today announced the filing of a superseding criminal indictment in the largest criminal tax case ever filed. Nineteen individuals were charged with conspiracy to defraud the IRS, tax evasion and obstruction of the Internal Revenue Laws arising out of illegal tax shelters that Big 4-accounting firm KPMG and others designed, marketed and implemented. According to the charges, the shelters generated at least $11 billion in fraudulent phony tax losses and resulted in at least $2.5 billion in tax evaded by wealthy individuals.
The indictment charges the former Deputy Chairman of KPMG, several former heads of KPMG’s tax practice; the former CFO of KPMG; the former head of KPMG’s Department of Professional Practice; a former KPMG Associate General Counsel; a former tax partner in the New York office of a prominent national law firm; and numerous other former KPMG tax partners. KPMG, headquartered in New York with offices in most major cities of the United States, acknowledged its criminal wrongdoing in a deferred prosecution agreement approved by the court on August 29, 2005. “The Department of Justice is committed to enforcing the tax laws to make certain all individuals comply with their tax obligations,” said Acting Deputy Attorney General Robert McCallum. “To this end, the Department will vigorously prosecute any individual who makes false representations to the Internal Revenue Service. The prosecution of this case sends a strong message that tax professionals must be honest in their dealing with the IRS.”
Among other charges, the indictment alleges that from 1996 to early 2004 the 19 defendants, KPMG, and others conspired to defraud the IRS by designing, marketing and implementing illegal tax shelters, and focusing on four shelters known as FLIP, OPIS, BLIPS and SOS. It is charged that this illegal course of conduct was approved and perpetrated at the highest levels of KPMG’s tax management and involved numerous KPMG partners and other personnel. “The development and promotion of abusive tax shelters had a corrupting effect on the legal and accounting professions,” said IRS Commissioner Mark Everson. “Tax professionals should help people pay what they owe-not more, not less.”
According to the charges, the alleged conspirators designed, marketed and implemented the shelters so that wealthy individuals who had large incomes or a large capital gain could eliminate all taxes on that income or gain by simply paying to KPMG all-in costs and fees of from 5-7% of the income or gain they wished to shelter. The shelters were marketed only to individuals who needed a minimum of $10 million or $20 million in losses, and according to the charges, the defendants and their co-conspirators filed and caused to be filed false and fraudulent tax returns that incorporated the phony tax losses. In addition, the defendants and their co-conspirators took specific steps to conceal the very existence of the shelters from the IRS and from IRS scrutiny-by among other things-failing to register the shelters with the IRS as required, and by fraudulently concealing the shelter losses and income on tax returns, according to the indictment.
The indictment also alleges that from 2002-2003, in response to the IRS examination of KPMG for failure to register tax shelters and related matters, certain of the defendants continued the fraud on the IRS by concealing KPMG’s involvement and role in certain shelters; intentionally failing to produce documents that were called for by summonses issued by the IRS; and providing false and evasive testimony to the IRS regarding the nature and scope of KPMG’s involvement with certain shelters. In addition, in connection with the investigation into tax shelters being conducted during the pendency of the IRS examination by a Senate Subcommittee, certain defendants provided false, misleading and incomplete information and testimony at a hearing and a false response regarding documents that were called for in a subpoena issued by the Senate, relating to the personal use of tax shelters by KPMG and certain KPMG partners. "It is hard to imagine anything that can serve to undermine our voluntary system of taxation more than the crimes charged today, where so many professionals banded together with wealthy individuals to perpetrate this massive fraud on the tax system. This was an orchestrated case of deliberate tax evasion, and not legitimate tax planning. Professionals, including lawyers, accountants, bankers, so-called investment advisors and their firms -- as well as taxpayers -- should be on notice that the government will pursue even the most complicated tax-fraud schemes designed to help the wealthy evade paying their fair share."
The investigation is ongoing. Assistant U.S. Attorneys Justin Weddle, Stanley J. Okula and Special Assistant U.S. Attorney Kevin M. Downing are in charge of the prosecution. Shirah Neiman, Chief Counsel to the U.S. Attorney, is supervising the investigation and prosecution.
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.