KPMG Agrees to Tax Shelter Settlement

The accounting firm will pay $456 million and avoid prosecution.
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KPMG

will pay a $456 million fine and admit it broke the law by developing a tax shelter that enabled wealthy clients to evade paying at least $2.5 billion in federal taxes.

Federal prosecutors, as part of the settlement, charged the accounting firm with conspiring to defraud the Internal Revenue Service.

But in a much-anticipated move, federal authorities agreed to defer prosecution on those charges and ultimately dismiss them, if KPMG paid the fine and agreed to several permanent restrictions on its tax practice.

However, eight former KPMG employees, including former deputy chairman Jeffery Stein, were not so fortunate. A grand jury indicted them on a similar conspiracy charge. Also indicted was a former tax attorney with a law firm that did business with KPMG.

"Today's agreement requires KPMG to accept responsibility and make amends for its criminal conduct while protecting innocent workers and others from the consequences of a conviction," said Attorney General Alberto Gonzales, in announcing the settlement.

The settlement with KPMG enabled the accounting firm to avoid the fate of

Arthur Andersen

, which was effectively forced to close its doors after federal prosecutors filed a criminal indictment against it in the

Enron

scandal.

In its investigation of KPMG, prosecutors charged the firm created a tax shelter that led to the creation of at least $11 billion in phony tax losses for some of the firm's wealthy clients. The government alleged that KPMG took deliberate steps to try to conceal the existence of the tax shelters from IRS investigators.