Reprinted with Permission from AccountingWEB.com

KPMG Faces Yet Another Suit Over Tax Shelters

AccountingWeb.com
August 13, 2004

KPMG's tax shelter woes expanded when the investors and officers of a Boca Raton web-hosting company filed an eight-figure lawsuit over tax shelter advice they received in the 1990s from the Big Four firm, the Boca Raton News reported.

The suit, filed in late June in Palm Beach Circuit Court, claims that KPMG and law firm Sidley Austin Brown & Wood tricked Best Communications into investing millions of dollars in a succession of tax-avoidance schemes, according to attorneys Edward Ricci and Benjamin Salzillo.

KPMG tax shelters have been the subject of increasing scrutiny by the Internal Revenue Service, among others. Government lawyers have gone to court in recent months to compel KPMG and others that promoted tax shelters to disclose closely held client lists.

The suit states that just one set of transactions on behalf of the defendants reaped $10 million in commissions for KPMG lawyers and accountants.

"This is a blatant example of late-90s pigs at the trough," Ricci told the Boca Raton News. "KPMG solicited my guys and showed them extensive data from Sidley Austin and other corporate giants to hook them. KPMG's internal analysts knew the IRS would not approve the scheme, but the commissions were so big that they went ahead anyway."

In 1995, Boca residents Scott H. Adams and William G. Nesbit took $8,000 in start-up money and founded Hiway Technologies, Best Communications' precursor. Just five years later, they sold the company to telecommunications conglomerate Verio Inc. for $350 million.

The complaint is based largely on a 2003 investigation of tax shelters commissioned by the U.S. Senate. It alleges conspiracy, fraud and legal and accounting malpractice, and demands millions of dollars in compensation for IRS penalties, expenses and lost investment opportunities.

"I don't have a tight number, because it will take the IRS a couple months to estimate the penalties," Ricci said. "I can say that it's eight figures and climbing."

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