Tax Shelter Frauds – Should KPMG be ‘Sheltered’?
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Code : GOV0026C
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Region : US |
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The Background KPMG was one of the largest professional services firm in the world. It was a Big Four Accounting Firm along with PricewaterhouseCoopers, Ernst & Young and Deloitte Touche Tohmatsu (previously Deloitte & Touche). The name KPMG stands for Klynveld, Peat, Marwick and Goerdeler, the names of the founders of accounting firms merged to form KPMG. The history of KPMG went back to the mid 19th century when William Barclay Peat founded the accounting firm William Barclay Peat & Co... KPMG’s accounting frauds One of KPMG’s clients, Comroad, a small navigation systems manufacturer in Germany was accused of frauds in its financial statements. Comroad had reported that about 63% to 97% of its sales from 1998 to 2000 came from a Hong Kong based subsidiary company called VT Electronics. However, investigations revealed that the subsidiary itself was non-existent and the company had committed a fraud. KPMG was accused of being linked with the fraud by allowing such misrepresentation... KPMG’s Tax shelter frauds Although KPMG was involved in accounting frauds it did not face the threat of criminal prosecution until it was charged for its tax shelter frauds. KPMG was a late entrant to the tax shelter business. The stock market boom had created many dot com millionaires who were very keen to hide their new income from taxes. The accounting firms thus saw a business opportunity more profitable than their traditional audit practice... |
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The Litigation On receipt of anonymous complaints and information about KPMG’s tax shelters, IRS issued dozens of summons to KPMG in 2002, asking for information about certain tax shelters and their investors. KPMG refused initially and later released the names of only a few of its investors. This was because KPMG had earned huge revenues from the tax shelter business and wanted to avoid any scrutiny of the products. Moreover, the presence of former IRS and justice department executives in its management team, further strengthened KPMG’s resolve to resist the IRS scrutiny...
