KPMG Tax Shelters: A Very Strange Indictment

Robert Weisberg and David Mills:

The recent indictment of some KPMG partners makes for very interesting reading. In the months leading up to it (and the now-rumored indictment of other tax advisors on similar grounds), numerous news stories suggested the KPMG accountants had somehow knowingly participated in tax fraud by creating fake losses for wealthy clients. Whether or not this proves true, the indictment makes no such allegation. While the accountants and their clients may have done some bad things, the notion that their behavior is criminal, and even sufficiently criminal to threaten the very existence of this major firm and its thousands of jobs, casts doubt on the fairness and judgment with which the federal prosecutors have exercised their discretion.

Why did they do so in this case? Probably for the simple reason that they are — quite properly — offended by the proliferation of newfangled and economically questionable tax shelters, yet at the same time exasperated that Congress shows no interest in legislating these shelters out of existence or enacting a clear “business purpose” requirement, in spite of repeated requests from the Internal Revenue Service. The prosecutors seem to be venting their frustration over this failure to act by fashioning felony charges out of ethereal legal material.

Delphi’s Bankruptcy

Peter DeLorenzo points out the stakes in play with Delphi’s bankruptcy:

The Delphi bankruptcy is the latest major crack in the pressure cooker that the U.S. auto industry has become over the last two decades – only this one is definitely the tipping point into a dimension that industry insiders have been dreading. Lower cost competition from around the world has changed the auto manufacturing landscape completely – and Detroit has been operating under a model that has been obsolete for years. Strapped with a crushing wage and benefits structure negotiated in an environment fueled by an optimism that in retrospect had absolutely no right to exist, the American car companies and the United Auto Workers union are now facing a future that revolves around a harsh reality that comes down to this one simple but all-encompassing statement: change or die.