Tax Update Blog: KPMG Archives

APPEALS COURT AFFIRMS DISMISSAL OF KPMG CASE CHARGES

August 28, 2008

The judge in the criminal case involving tax shelters marketed by KPMG dropped 13 defendants from the case last summer. Five defendants remained under indictment.

The Second Circuit court of Appeals in New York upheld the trial judge's decision today. The courts held that the defendants were denied their right to counsel when the Department of Justice pressured KPMG to not pay employee and partner legal fees.

Cite: United States v. Stein, et.al., CA-2, No. 07-3042-cr.

Media Roundup:

Bloomberg
NY Law Journal
NY Times

And the TaxProf has more.

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TAX EVASION CHARGES TO BE TRIED SEPARATELY IN KPMG CASE

August 05, 2008

Tax evasion charges against one of the defendants in the KPMG tax shelter trial will be tried separately from the rest of the case, WebCPA reports. The trial is set to begin next month.

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EX-KPMG PARTNER FACES NEW TAX SHELTER CHARGES

March 20, 2008

One of the defendants still facing criminal charges relating to KPMG's tax shelter business was hit with a new round of criminal charges yesterday. Robert Pfaff faces new charges of setting up fraudulent shelters in the Northern Marianas islands. The charges also allege that he hid his fees for the transactions from both the IRS and his own accounting firm, KPMG.

The TaxProf has a roundup.

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GUILTY PLEA BOOSTS KPMG CASE PROSECUTION

September 11, 2007

A few weeks ago, the high-profile tax shelter prosecution of former KPMG seemed on the verge of collapse. A guilty plea may give it new life. From today's New York Times:

The government’s criminal case against promoters of questionable tax shelters took a step forward yesterday when an investment adviser at the center of the inquiry pleaded guilty and provided new details on those involved.

The plea by David Amir Makov, 41, in Federal District Court in Manhattan is expected to bolster the government’s investigation of Deutsche Bank over its work with questionable shelters, including one known as Blips, whose workings Mr. Makov described in detail yesterday.

The work must have been profitable; Mr. Makov agreed to pay a $10 million fine. His plea may help prosecutors argue that the shelters were not agressive tax planning, but mere shams. He explained the "BLIPS" tax shelter, versions of which were marketed by KPMG and others. The shelter is reported to have generated over $5 billion in false tax losses. From the Times report:

Although Blips were created on paper to look like seven-year investments, it had neither real loans nor a real investment component, Mr. Makov explained yesterday. "There was no economic substance," he said. "Instead, we created the appearance of economic substance, rather than the reality." Mr. Makov added that he was "clearly told by Bank A, KPMG” and others “that the loan was not at risk."

While he initially thought that Blips were legitimate, he said that "as part of the deception" he was eventually "asked by representatives of Bank A," among others, "to come up with an investment rationale."

How's this for a rationale: "to generate $10 million to pay my criminal fines."

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JUDGE DROPS CHARGES AGAINST 13 KPMG DEFENDANTS

July 16, 2007

When you're thrown off the sled, usually the wolves get you. Thirteen former KPMG partners and employees cheated the wolves today.

The trial judge in the KPMG tax shelter criminal case dismissed the charges agains the 13 defendants who were affected when KPMG agreed not to pay for their legal defense to keep the firm itself from being indicted.

The case agains three other ex-KPMG employees and two non-KPMG defendants in the case will proceed to trial.

The TaxProf has a full roundup.

Link: Complete Tax Update coverage.

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INSIDE THE KPMG NEGOTIATIONS

July 06, 2007

The New York Times today describes notes taken by a defense attorney during the tense negotions between international accounting firm KPMG and the Justice Department when the firm was on the verge of being indicted:

Now Mr. Barloon’s notes of meetings from March through June 2005, which were made public in June in connection with the related criminal trial of 16 former KPMG tax employees, provide a rare and detailed look inside the closed-door process of those dealings.

“We almost never get a front-row seat to a negotiation between a major multinational company and the United States government,” said Stephanie Martz, director of the White Collar Crime Project.

An indictment would probably have brought down KPMG. The notes seem to show that the government made KPMG throw some of its partners off the sled to hold off the wolves:

Rod Rosenstein, the deputy assistant attorney general, who was at the meeting, asked whether the Justice Department was “setting a precedent that we can’t prosecute somebody if they come and clean everything up.”

But earlier in the meeting, [defense attorney] Mr. Bennett said that “what was really precedent-setting about the case was the conditioning of the payment of [partner and employee] legal fees on cooperation. We said we’d pressure — although we didn’t use that word — our employees to cooperate.”

This denial of legal fees for employees is at the heart of efforts to have the criminal charges against former KPMG partners and employees dismissed. The trial judge is considering the issue.

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KPMG CHARGES TO BE THROWN OUT?

June 01, 2007

The judge hearing the criminal case involving ex-KPMG employees will hold a hearing on whether to throw out the charges. The judge is considering dismissal on the grounds of prosecutorial misconduct. The White Collar Crime Prof Blog discusses the details. The TaxProf and the Tax Girl have more.

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NYT: INDICTMENTS LOOM FOR E&Y TAX SHELTER FIGURES

May 30, 2007

The New York Times reports:

Federal prosecutors have decided not to bring criminal charges against the accounting firm of Ernst & Young over its work with questionable tax shelters, but will instead bring criminal charges against four employees today, people close to the case said.

The Ernst & Young employees to be charged by federal prosecutors for the Southern District of New York are Robert Coplan, Richard Shapiro, Martin Nussbaum and Brian Vaughn, according to these people.

The prosecutors seem to be taking a more low-key approach here than they did with their indictment of 17 people, mostly former partners and employees of KPMG, coupled with a "deferred prosecution agreement" that made major changes to the KPMG tax practice. The KPMG case has run into trouble, with the presiding judge unhappy with prosecution tactics. Perhaps the Justice Department's more subdued approach to the E&Y case is a result of their problems in the KPMG matter.

UPDATE: Indictments announced.

UPDATE II: The TaxProf has a link roundup.

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SIDLEY SETTLES; KPMG AVOIDS TRIAL ON FEES

May 24, 2007

Yesterday saw two developments in the ongoing tax shelter court battles. Legal giant Sidley & Austin settled charges of promoting bad tax shelters by agreeing to pay a $39.4 million penalty; in return, the government agreed to not pursue criminal charges. The case arose from tax shelter opinions written by Richard Ruble, one of the defendants in the case of the former KPMG partners. Mr. Ruble joined Sidley & Austin when it bought the Brown & Wood law firm.

Meanwhile, KPMG avoided a separate trial on whether it would have to pay the legal fees of its indicted former partners. The Second Circuit Court of Appeals ruled that the trial court judge was out of bounds when it ordered the trial on fees. The fee issue will now be settled in arbitration.

The TaxProf Blog rounds up both stories:

TaxProf Sidley coverage
Tax Prof KPMG coverage

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KPMG CRISIS RECALLED IN WALL STREET JOURNAL

February 15, 2007

The Wall Street Journal has a page-1 piece today on accounting giant KPMG's near-death experience. It tells how Timothy Flynn took the reins of the firm when the former chairman stepped down after being diagnosed with a fatal brain tumor. Only three days later, Mr. Flynn was in conference with the Justice Department trying to keep the firm from being indicted for its tax-shelter dealings.

It's an interesting account of how KPMG narrowly avoided being put out of business by its tax shelter products. It certainly is a different firm than it was in 2005.

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ANOTHER SHELTER LOSES IN COURT

February 02, 2007

A marketed tax shelter failed a court test in Texas this week. The New York Times reports:

The shelter, known as Blips, plays a central role in the criminal inquiry of Deutsche Bank over questionable tax shelters and in the pending criminal trial in federal court in Manhattan of 16 former employees of the accounting firm KPMG and two outsiders.

The civil ruling on Tuesday by Judge T. John Ward of Federal District Court for the Eastern District of Texas will probably add ammunition to Manhattan prosecutors’ arguments that Deutsche Bank acted improperly by providing fake loans for Blips and similar shelters. Judge Ware’s is the first major civil ruling on the legitimacy of Blips, or bond-linked issue premium structure.

The opinion says that much of the transaction documentation was a facade, meant to legitimize the shelter by outlining planned events that in real life were never meant to happen.

Interestingly, the U.S. District Court declined to assess penalties on the taxpayers, saying they reasonably relied on their tax advisors and the shelter opinions.

Link:

Tax Prof Coverage

Cite: Klamath Strategic Investment Fund, LLC No 5:04-CV-278

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PLEA DEAL ILLUSTRATES TAX SHELTER INDICTMENTS

January 12, 2007

A plea agreement this week illustrates how the government's case in the indictment of former KPMG partners isn't simply a matter of criminalizing an aggressive tax position. The government's case alleges the use of straw men, non-existent transactions, and falsified documents used to mislead IRS agents investigating the shelters. From the Statement of Information for the guilty plea($link):

In particular, I was instructed to falsely misrepresent that one of the David Greenberg's tax shelter transactions was an investment transaction that I had devised and implemented with the client in December 2000, in truth and in fact, the transaction under investigation was a David Greenberg tax shelter, and the transaction was in fact never entered into by the client. I was instructed to conceal the fact that the client never entered into any transaction in 2000 or at any other time and conceal that David Greenberg and I agreed to back date documents to make it appear that the client made an investment in 2000. As directed by Greenberg ,* * * and * * *, when interviewed by the Special Agent and in the presence of * * *, I lied to the Agent to conceal the true facts of the transaction..

The case of the KPMG ex-partners has been controversial, especially the way the government bludgeoned KPMG to cut off legal fees to the defendants by threatening to indict the firm itself. The prosecution has been on the defensive procedurally, but this plea shows that the defendants still face very serious charges.

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SHEPPARD: PROSECUTION OVERREACHED ON KPMG PARTNER INDICTMENTS

August 01, 2006

Lee Sheppard has an important piece in Tax Analysts today ($link) where she finds the prosecution case in the KPMG partner indictments wanting. She concludes:

What we may have here is another Martha Stewart case if the government loses a civil case on the underlying shelter. That is, we could have charges of conspiracy to defraud the United States by means of obstruction and false statements sustained against the Stein defendants even though there was no underlying crime. Judge Kaplan should dismiss the tax evasion charges in the superseding indictment, if not the whole thing.

Ms. Sheppard isn't known for sympathy with shelter promoters. It's a bad sign for the prosecution if they have lost her. If you have a subscription to Tax Analysts, the piece is worth the read.

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TAX CRIME TAKES NO VACATION

July 24, 2006

Even though the Tax Update took a vacation, the wheels of tax justice continued to grind.

The biggest story while I was out has to be the delay in the KPMG tax shelter trial. Now that the defendants can pay their lawyers, the judge is giving them more time to prepare their case. The trial, which had been set to start in September, now is slated to begin January 15, 2007. (UPDATE: A commenter says I need to check my facts, and I think the commenter is correct. While the judge is leaning on KPMG to pay the fees, and on the Justice Department to go along, KPMG is resisting.) In a related story, a federal judge in Texas ruled that a regulation against the "son-of-BOSS" tax shelter could not be applied retroactively. While that doesn't mean the shelter worked as advertised - the IRS can still challenge it on economic substance grounds - the decision is still good news for shelter investors who haven't settled this shelter.

In other tax crime news:

ANOTHER STUDIOUS TAXPAYER FALLS

Tax gadfly-attorney Larry Becraft lost another one. Mr. Becraft defended Robert Kelliher, an Illinois electricion, on charges of failure to pay because he believed "in good faith" that the tax law didn't apply to him. It was another instance of misguided study:

Kelliher's attorney, Lowell Becraft Jr., countered that his client had concluded that the income tax code didn't apply to him through the study of decades- and century-old court cases. Kelliher faces a maximum of 10 years in prison, a $250,000 fine and the cost of his prosecution when he is sentenced in October.

We have talked about the dangers of overstudying.

THIS WON'T BE GOOD FOR HIS BUSINESS

A Denver tax attorney was sentenced to two months in prison and 8 months of home dentention for helping a client evade taxes using offshore shell companies and trusts.

THE CHINESE RESTAURANT MENACE

The long arm of the tax law catches up with another Chinese restaurant, this one in Michigan.

NO JUSTICE, NO PIECE OF CLOTHING

A West Virginia strip club owner may stand naked before the law.

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JUDGE: KPMG PROSECUTORS ACTED UNCONSTITUTIONALLY, BUT CHARGES AREN'T DROPPED

June 27, 2006

A U.S. Judge helped out the finances of the indicted former KPMG partners by opening the door for the international accounting firm to pay the parters' legal fees -- and then vigorously motioning the firm through that door. The judge declined to drop the charges, however. The Wall Street Journal reports ($link):

A federal judge in Manhattan found that government prosecutors violated the constitutional rights of 16 former KPMG LLP executives facing criminal charges for allegedly marketing fraudulent tax shelters by pressuring the firm to cut off their legal fees.

But U.S. District Judge Lewis A. Kaplan declined to dismiss the indictment against the former KPMG employees, saying they could file civil claims against the accounting firm to have the fees paid. He also suggested that KPMG could agree to advance the fees, and said the government could use its "leverage" to get the firm to pay the legal fees beyond its $400,000 cap.

In case somebody didn't get the hint:

Judge Kaplan left open the possibility the court could take further action if the fee issue isn't resolved. "The court declines to consider additional relief at this time, although it may do so in the future if KPMG does not, for one reason or another, advance defense costs," he wrote

The fees for the defense have to be enormous, so this must be a great relief to the defendants and their families. Given that long prison sentences are still a possiblity if the charges ultimately stick, the defendants can be excused if they aren't too happy just yet. Of course, being able to pay your lawyers can't hurt them on that score.

The TaxProf has a roundup.

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INDICTED EX-PARTER FLIPS IN TAX SHELTER CASE

March 27, 2006

David Rivkin, one of the 19 individuals indicted in the KPMG tax shelter case, entered a guilty plea today and agreed to cooperate with prosecutors:

Rivkin admitted that he conspired with others between January 1999 and May 2004 to prepare and execute false documents so that clients could file false tax returns.

He also admitted that he took steps to conceal the existence of fraudulent tax shelters from the Internal Revenue Service and avoided registering the shelters with the IRS by claiming attorney-client privileges.

In pleading guilty to conspiracy and tax evasion, Rivkin signed an agreement to cooperate with prosecutors, who could then ask the judge to consider giving Rivkin a more lenient sentence rather than the years he might face in prison. Sentencing was set for Feb. 9, 2007.

This is the first crack in the solid front of resistance of those indicted in the case. Expect the remaining defendants to say that the guilty plea was the result of irrisistable pressure by the prosecution.

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TAX SHELTER CASE NOT JUST ABOUT TAX PLANNING

March 07, 2006

Tax shelter promoters who are facing criminal chargers, and their defenders, like to repeat that none of the shelters have been found illegal in court. The recent New York Times report about Deutsche Bank, which implied that many of the essential transactions in their shelters may have never happened, hinted at why the government decided that the activities of KPMG shelters went beyond aggressive tax planning and became criminal.

The defendants recently moved to dismiss the indictments. In their reply brief to the dimissal request, the prosecutors confirm that their case goes far beyond challenging the tax theories supporting the shelters. They say that many of the transactions that underlie the shelters - transations that even shelter fans would admit are necessary to achieve the desired results -- never took place. Instead, according to the prosecution, phony documents were generated for imaginary transactions, and the shelters relied on less on tax theory than on hiding the ball and hoping the IRS wouldn't notice. The reply brief lays out the basic accusations:

The obvious point of this phony documentation was to convince clients to claim these massive phony tax losses and provide a script and props for misrepresenting the transaction and deceiving the IRS if and when the clients were audited. The defendants used various additional furtive means to conceal or obscure the transactions, such as by: (i) deciding, for business reasons, to refrain from registering the transactions as tax shelters because the penalties for not registering them paled in comparison to the fees they stood to collect from selling unregistered (and therefore unknown to the IRS) tax shelters; (ii) completely omitting income or gain and shelter losses from the clients' individual income tax returns; (iii) splitting up massive phony losses and sprinkling them throughout a schedule to the return in hopes of tricking the IRS into thinking that the losses were created by various different investment transactions; and (iv) using phony attorney-client relationships in order to conceal the facts. If the IRS, despite these fraudulent efforts, nevertheless discovered the shelter in the course of an audit, then the plan, the Indictment alleges, was that the clients would provide the phony documentation to further defraud the IRS and conceal the true facts so that the clients could keep for themselves money the clients should have paid in taxes. If the IRS nevertheless disallowed the phony losses, the plan (it is charged (Indictment ¶ 27) was to reveal the false opinion letters to the IRS and claim that no penalties should be assessed on the grounds that the clients relied on the opinion letters.

The government has a long way to go before this is proven in court, of course. Still, these new details about the prosecution of the former KPMG partners are reassuring to tax practitioners, in a perverse way. These assertions aren't about making aggressive tax planning criminal; it's about prosecuting actions that, if they happened, were blatantly fraudulent. Fake transactions and phony documents have always been fraud, and prosecuting tax shelter promoters for fake documentation is no more a threat to ordinary tax practice than the prosecution of Irwin Schiff.

Links:

roundup of coverage TaxProf roundup of recent developments in the case.

Prosecution reply brief (large pdf file; if you get an Adobe Acrobat Reader error message, you can view the document by changing your acrobat preferences - Edit, Preferences, Internet, then uncheck "allow fast web view").

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DEUTSCHE BANK: PRETENDING TO PRETEND?

February 24, 2006

Many tax shelter transactions in the 1990s depended on a certain suspension of disbelief. Taxpayers would weave an elaborate web of deals and entities to, say, move income offshore or generate artificial losses, and then try to say with a straight face that this stuff happens all the time, and they just needed an offshore partner in the Netherlands and the Caymans to borrow money just the right way. The paper trail was carefully marked with a pretend business purpose for the real transactions. With all of the transactions actually taking place, there was at least something to argue about.

But what if the real transactions with a pretend non-tax purpose were themselves imaginary? That's the intriguing implication of a story in this morning's New York Times. The story says Deutsche Bank, which played a prominent role in the shelters that are the subject of the KPMG indictments, is negotiating a settlement of criminal charges related to the Justice Department:

For Deutsche Bank, the path toward a settlement may be rockier, in part because it had a much larger role in the creation of some questionable tax shelters and the transactions underpinning them, investigators have said. A potentially larger obstacle, say the people briefed on the case, is that Deutsche Bank appears unable to account for a number of those transactions.

In the past, Deutsche Bank has described the transactions it arranged for tax shelters, including ones known as blips and cobra, as regular and ordinary.

But Deutsche Bank has been unable to provide to federal prosecutors in Manhattan paper documents detailing some transactions for these shelters, according to the people briefed on the case.

If the transactions never actually took place, that would make it hard to say that people are just being prosecuted for savvy tax planning.

Previously undisclosed internal documents that were provided by a lawyer involved in civil litigation against the bank raise questions about some Deutsche Bank transactions.

An October 2001 e-mail message written by Andrew Baxter, a trader on Deutsche Bank's derivatives desk, to a Jenkens & Gilchrist lawyer suggests that the bank did not extend actual loans to an investor in a cobra tax shelter. For the shelter, the investor had "borrowed" $20 million from the bank and "bought" options worth $20.125 million. Mr. Baxter, whose e-mail message was titled "cash flows," wrote, "Do you want the monies to actually flow into the account or is it sufficient for the client to net pay" the $125,000. "It makes a big difference to our back office."

Wow. If that stuff is true (and these are assertions from people suing KPMG, so they aren't impartial), then the tax shelter industry doesn't even live up to my already low opinion of it.

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HVB COPS SHELTER PLEA; DEUTSCHE BANK NEXT?

February 15, 2006

Serious activity on the tax shelter front this week:

- HypoVereinsbank (HVB), a German Bank, entered a plea deal yesterday with the Justice Department that includes a $29.6 million fine and a deferred prosecution agreement for its role in implementing tax shelters with the KPMG accounting firm.

- The New York Times reports that Deutsche Bank is also under investigation for its role in the KPMG shelters.

- The IRS released to Tax Analysts a copy of the settlement and cooperation offer ($ link) reported by the New York Times yesterday. The IRS says that it will make this offer to about 100 "accounting firms, law firms, and banks that the IRS contends have been involved in criminal tax shelters," according to an unnamed IRS spokesman.

BAD NEWS FOR KPMG DEFENDANTS?

The admission of criminal wrongdoing by HVB can't be good news for the 19 former KPMG partners and employees under indictment for their role in the shelters. So far none of the indicted individuals has made a plea deal to cooperate against the others; this may increase the pressure on the defendants to strike a deal.

As Deutsche Bank had many more shelters with KPMG than did HVB, they also could have a real problem. Will they also face criminal charges, or will the government try to also turn them against the individual defendants?

As the New York Times points out, "No court has ever ruled blips or the three other tax shelters in question illegal. Still, the I.R.S. has never considered the shelters valid."

BAD NEWS FOR SHELTER BUYERS?

The offer to the other tax shelter promoters could be very bad news for shelter buyers. If they find this an offer they can't refuse, their tax shelter customers will soon get unwelcome certified letters from the IRS; if the shelter promotors cooperate with IRS, it will be very costly for their customers.

Links:

TaxProf Blog Roundup
Tax Analysts Free Coverage

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TAX SHELTER GRAND JURY GOING AFTER LAWYERS?

January 25, 2006

The New York Times reports today that there may be more tax shelter indictments, this time targeting a group of Chicago lawyers:

Federal prosecutors are investigating three lawyers at a prominent Dallas law firm, Jenkens & Gilchrist, in a widening of an investigation into questionable shelters that shielded billions of dollars from taxes, according to people briefed on the inquiry.

The criminal investigation of the lawyers, now being heard by a grand jury in Manhattan, is a clear sign that the government is extending the investigation of tax shelters that it considers abusive beyond the case involving the accounting firm KPMG.

There is no indication that Jenkens & Gilchrist itself is a target of the investigation. Petri Darby, a spokesman for Jenkens & Gilchrist, said yesterday, "We are cooperating fully with the investigation."

Instead, the investigation is focused on three current and former tax lawyers based in the firm's Chicago office, the heart of its tax practice. They are Paul M. Daugerdas (pronounced DOG-er-dus), Erwin Mayer and Donna M. Guerin, according to the people who have been briefed on the investigation.

It's interesting that there was never any thought of going after the law firm, while the KPMG accounting firm was forced to throw a number of its people to the wolves under threat of indictment. Are accountants held to a higher (or less low) standard?

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THIS WEEK IN TAX CRIME

January 13, 2006

Because inquiring minds want to know:

RICHARD HATCH, the nude "Survivor," went on trial this week for evading taxes on, among other things, the $1 million he won in the initial "Survivor" TV series. He is using an unusual twist on the old "blame the accountant" defense:

Reality show star Richard Hatch is merely the ''world's worst bookkeeper," not the tax evader that prosecutors make him out to be, his attorney said yesterday as the ''Survivor" winner's tax fraud trial got underway in Providence.

Really, though, it's a twist on the Steve Martin "I forgot about the million dollars" defense. Presumably his next move will be to say, "Excuuuuuse Me!"

EXTREME TAX PLANNING

Perhaps this is all just some sort of misunderstanding?

A Chicago lawyer disbarred for overbilling state child-welfare officials evaded more than $640,000 in federal taxes, partly by moving $2.6 million in assets to a Swiss bank account, according to a federal indictment made public Thursday.

Joyce F. Britton, 55, failed to file tax returns for 2001 and 2002 despite receiving more than $2.2 million in legal fees from the Department of Children and Family Services during those years, according to the indictment.

If she gets caught, she'd better have a heck of an alibi. "I was... I was... helping to finance democracy in Switzerland!"

MEANWHILE IN WEST VIRGINIA...

...an accountant goes bad.

Carl Lemley Kennedy II, 48, is scheduled to report to the federal penitentiary next month to begin serving almost 3 1/2 years.

In sentencing Kennedy, U.S. District Judge John Copenhaver Jr. noted that the accountant stole more than $1 million from employees’ withholdings, apparently investing the money in other businesses and property, and still owes the Internal Revenue Service $500,000 in personal income taxes.

The Charleston Gazette focuses lovingly on the toys bought with the ill-gotten gains:

With his 2003 Hummer H2 already sold off, Kennedy faces potential liquidation of his other property and assets. Already he sold his half-interest in a Surfside, S.C., beach house that was valued at $120,000 to a former wife...

Kennedy, who also owes more than $200,000 in West Virginia income taxes, also stands to lose his 1979 MGB, 1977 Harley-Davidson Superglider, 1976 Volkswagen Beetle convertible and his 1981 Piper Warrior II airplane.

The government will also probably offer his other property for sale at some point, including 112-120 D St. in South Charleston, 1107 and 1109 Main St. in Charleston and three, 2-acre lots in the Bahamas.

The Moral? Don't be a crook, or they take away your toys.

KPMG DEFENDANTS FILE MOTIONS TO DISMISS CHARGES

It looks like the defendants in the KPMG tax shelter case aren't going to go away without a fight. The New York Times reports:

Former KPMG tax professionals who are facing criminal charges over questionable tax shelters challenged the government yesterday to prove that they had broken the law.

The defendants filed more than two dozen motions in United States District Court in Manhattan yesterday, asking among other things that charges be dropped because no court had ever ruled the shelters in question illegal.

This is shaping up as a monumental battle.

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JUDGE PUTS FREQUENT FLIER MILES ON ICE FOR INDICTED ACCOUNTANT

November 15, 2005

A federal judge denied bail yesterday to one of the indicted ex-KPMG partners. The judge ruled David Greenberg was a flight risk and likely to tamper with witnesses.

Kaplan said on Monday that he considered nonviolent witness tampering and obstruction a danger to the community and grounds to deny bail.

The judge noted that the defendant had allegedly told a coconspirator that if he were indicted, he would take about $16 million to $20 million he had put in his ex-wife's name and take off.

Kaplan said that Greenberg's April 2004 formation of a limited liability company in the name of his former wife and his father corroborated that claim. The executive put between $11 million and $13 million into the company's accounts.

After analyzing the signatures on papers forming the company, Kaplan concluded that it was "quite unlikely" that Laura Greenberg, the ex-wife, had signed them at all.

The government has maintained that the former wife was unaware of the formation of the asset-holding company and learned of its existence by mistake through a mass mailing. The judge said the circumstances suggest Greenberg formed the company without his former wife's knowledge and kept its existence from her.

Serious business, indeed.

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