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September 20, 2005

A top assistant to IRS Commissioner Everson last week defended the recent indictments of former KPMG partners to a sceptical audience of attorneys last week, according to a Tax Analysts report. Speaking to the American Bar Association Tax Practice Committee in San Francisco, John Klotsche said the indictments are not an overreach by the IRS. Per the report:

Contrary to some published reports, the government’s tax fraud conspiracy case against KPMG and the resulting deferred prosecution agreement is not about the IRS and the Justice Department criminalizing the tax practice of technical tax shelters, said John Klotsche, a senior adviser to IRS Commissioner Mark Everson. “Nor is it a case about criminalizing aggressive tax planning or tax advice,” or about tax opinions on abusive tax shelters with which the IRS disagrees or which turn out to be wrong, he said.

Mr. Klotsche said that KPMG "crossed the Rubicon" from civil to criminal problems in its activities. An attorney at the meeting wasn't so sure:

It remains to be seen whether the Rubicon was crossed, or how many crossed it, responded moderator Larry Campagna of Chamberlain, Hrdlicka, White, Williams, & Martin in Houston. Moreover, no one should characterize the deferred prosecution agreement between KPMG and the government as a negotiated document, he said. The firm had a “gun to its head” and was given the choice of living with the terms, or not living at all, he said.

Practitioners will be following the case closely to see whether the evidence supports the IRS charges; the defense is likely to assert that the IRS is criminalizing normally aggressive tax practice.

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