More on the Tax System Mess: KPMG Indictments

Quite a bit of news Monday on the ongoing US Government Tax Shelter Investigations:

  • TaxProf links to statements, resolutions and indictments.
  • Jonathan D. Glater discusses the Southern District of New York’s Indictments and notes that:

    As part of its agreement with the government, KPMG issued a strongly worded acknowledgment of wrongdoing, which can be used by prosecutors in their criminal case against the individual partners, as well as against the firm in the event it violates the terms of the deferred- prosecution agreement. Lawyers for the former partners criticized the firm’s statement as meaningless.
    “The government held a gun to KPMG’s head and said, ‘Say what we want or we will put you out of business,” said Robert H. Hotz Jr., a lawyer at Akin Gump Strauss Hauer & Feld who is representing Mr. Lanning. “KPMG’s statements in court were the product of extreme duress and are not worth the paper they are printed on.”
    So far, no court has ruled that the shelter transactions themselves were improper – a fact that lawyers for the accused former KPMG partners were quick to emphasize.

  • Carrie Johnson on the Indictments
  • Attorney General Alberto Gonzales’ statement
  • Michigan’s Senator Carl Levin commented:

    Senator Carl Levin of Michigan, the senior Democrat on that committee, said in a statement that KPMG’s agreement and the indictments “send a powerful message to the promoters, aiders and abettors of abusive tax shelters that they can no longer expect to be let off the hook.”

    I find Levin’s statement somewhat ironic, given the recent evidently unintended huge SUV tax subsidies that provided a significant benefit to Michigan manufacturers at the cost of national fuel efficiency and lost tax income.

Ironically, the Supreme Court overturned the US Department of Justice’s indictment of Andersen, which cost thousands of people their jobs:

While hearing arguments in Andersen’s appeal, Justice Antonin Scalia at one point described the government’s theory of the case as “weird,” according to The New York Times.
What’s more, the justices “were so clearly sympathetic” to the former Big Five accounting firm, that the only question remaining at the end of the session was how quickly the Court would overturn the conviction, the paper added.
Of course, even if the conviction is overturned, it would not be much help to the thousands of former employees who lost their jobs and the former partners who lost their equity.

Real tax reform is long overdue. Will we see it from our politicians? Unlikely, when both Feingold and Kohl are supporting bills like this very large, multinational corporation tax giveaway.

I’ve known Bob Pfaff, indicted today, for 20 years and have always found him to be a great friend and honorable man. I’ve posted a few items on this previously here. The recent Kelo Case is also worth watching in this context.