I rifugi fiscali offerti da ....

[FaGal]

February 12, 2005
KPMG's tax shelter woes mount

A 144-page Senate Permanent Subcommittee on Investigations report issued this past Thursday provided more embarrassing public disclosures of how the Big Four accounting firm KPMG mass-marketed dubious tax shelters from the late 1990's through late 2003. Here are previous posts over the past year on KPMG's tax shelter problems. Here is the Senate subcommittee's report.

The report is the second on questionable tax shelters that the Senate subcommittee has released that concludes that KPMG has been deeply involved in designing and selling abusive tax shelters since the mid-1990's. Although the new report focuses to KPMG, it also deals with the the tax shelter activities of Ernst & Young and PricewaterhouseCoopers, several banks, including Deutsche Bank, and the law firm of Sidley Austin Brown & Wood.

http://blog.kir.com/


Il report
http://hsgac.senate.gov/_files/FINAL...LTERREPORT.pdf

[FaGal]

Considering a Tax Shelter? Think. Then Think Again.
www.nytimes.com - By ELLEN ROSEN - February 17, 2005


Joe Polish, a marketing consultant for small businesses, often advises clients on how to avoid fraud and unethical deals. So he was taken aback when he discovered that he had become the victim of a sophisticated tax scam.

"I'm president of my own company and have been in business for over 10 years," said Mr. Polish, the founder of Piranha Marketing in Tempe, Ariz. "I would like to think I'm pretty savvy about things. But I was suckered in."

His gullibility, he said, ended up costing him tens of thousands of dollars and countless hours that he could have spent more profitably building his firm.

Mr. Polish is not alone. Owners of small businesses make ripe targets for all sorts of unscrupulous tax preparers and tax promoters offering to set up tax shelters, said tax specialists. That is because many small businesses often lack the internal financial controls found at big corporations and their executives are too willing to delegate tax decisions to others, the specialists said.

The Justice Department and the Internal Revenue Service began a joint initiative in 2000 aimed at fraudulent tax shelters and preparation, but the enforcement has been ramped up significantly in the last two years.

The Justice Department said it sued 58 tax promoters last year, compared with 19 in 2002. The number of injunctions obtained to stop abusive tax practices in those cases rose to 49, from 16. In January, the department said, it sued four more tax promoters. An agency spokeswoman, Jaclyn Lesch, said those figures did not count cases against individual tax preparers who were not involved in widespread fraud.

In his case, Mr. Polish, the marketing consultant in Arizona, said a mutual friend introduced him to a tax promoter named Daniel A. Fisher. Mr. Polish said Mr. Fisher "proposed a tax structure that he said was completely legal and ethical and would allow me to get back taxes that had been paid and save taxes in the future."

"I didn't understand the structure of what he was promoting," Mr. Polish said, "other than he said it was good and claimed that the Big Four accounting firms were doing it."

Mr. Polish signed numerous papers, including what turned out to be a power of attorney, which enabled Mr. Fisher to file amended returns for past years. Not long after, Mr. Polish said he "started getting a weird feeling."

"So I talked to my C.P.A. who put me in touch with another accountant." That accountant, Sandy A. Abalos, of Phoenix, examined a partnership that Mr. Fisher had set up for Mr. Polish and found blatant fraud.

Trying to rescind fraudulently amended tax returns filed by Mr. Fisher was difficult, Ms. Abalos said, because of problems determining what Mr. Fisher had filed with the I.R.S. Also, Mr. Fisher had cashed the I.R.S. refund checks.

Mr. Polish and Ms. Abalos nonetheless went to the I.R.S. to disclose their fears of fraud. Ultimately, Mr. Polish learned that he actually owed $23,000 to the I.R.S., in addition to "close to $30,000 in professional fees" paid to Ms. Abalos and others. On top of that were "lost opportunity costs, from having to devote time" to clearing his records, he said.

The I.R.S. had been investigating Mr. Fisher and his wife, Brenda, when Mr. Polish told the agency about his experience. The I.R.S. relied on Mr. Polish's testimony in court when it prosecuted Mr. Fisher last fall for tax fraud amounting to more than $10 million. Mrs. Fisher pleaded guilty to one count of fraud in connection with a bank loan and avoided trial. In December, Mr. Fisher was convicted of fraud in federal court in Dallas. He is now in jail awaiting sentencing, said his lawyer, Sam Ogan, a federal public defender in Dallas..

In other recent actions, the Justice Department has indicted a company that offered fraudulent home-office deductions, has sued tax preparers for hiding clients' income and has pursued a firm that preyed on blacks owning businesses. The I.R.S. annually publishes a list of the 12 most egregious schemes, including fraudulent trusts, offshore transactions and failure to pay obligations like the federal payroll tax. In its lawsuits, the department seeks to force the accused tax preparers or promoters to turn over their lists of customers. Business owners named on those lists can find themselves ensnared in lengthy and costly audits. "There can be dire consequences for those who bought into the scam," said Eileen O'Connor, the assistant United States attorney general who heads up the tax division at the Department of Justice. "You won't just owe taxes. There's interest, penalties and you might face prosecution."

Small businesses are frequent targets of one particular type of tax scam: fraudulent business or charitable trusts created to hide an individual's or business owner's assets and to establish a mechanism to take extraordinary deductions, Ms. O'Connor said.

The federal government said in court papers that David Anthony, a chiropractor in Lehigh Acres, Fla., was a victim of that type of fraud.

Mr. Anthony's trouble began when he followed the advice of Fred J. Anderson, the president of his local Rotary Club. Although Mr. Anthony already had an accountant, he said it was a long drive to the accountant's office, so he retained Mr. Anderson to prepare his taxes. After some routine work, Mr. Anthony said Mr. Anderson and an associate started pressuring him to create both a charitable trust and a business trust to shelter his income and to deduct a panoply of ordinary expenses, like food.

"They showed me how it worked and went out of their way to tell me that it was completely legal, that people don't do it because they don't know about it," Mr. Anthony said. "They even pulled out the tax code, and promoted the trust as something legal and legitimate."

Initially, he said, he was skeptical, and another accountant whom he consulted shared his doubts. "But no one could show me in the tax code why it wouldn't work," he said. "I couldn't find anyone who could say 'Here is the case law' " that would refute the tax strategy that Mr. Anderson and his company, Tax Strategies Inc., were following.

The I.R.S. thought differently, after it audited Mr. Anthony's return. Ultimately, the I.R.S. told Mr. Anthony he owed more than $200,000 in back taxes and interest. Mr. Anthony also incurred about $25,000 in professional fees on top of the $14,000 he had paid Mr. Anderson..

The Justice Department filed a civil suit against Mr. Anderson and two other defendants in federal court last July over the work their firm performed for Mr. Anthony and many others. A federal court in Florida denied a motion for a preliminary injunction against Anderson, and the case is pending.

Mr. Anderson said the suit was "a waste of taxpayer money." In documents filed in the case, he and the other two defendants said they were following the advice of a lawyer, now deceased, who created the trusts.

These cases should give business owners pause before signing on with tax promoters, tax specialists said. Many small businesses rely on accountants to pay as little tax as possible. But owners of small businesses "don't understand taxes, and that's where they get into trouble," said Ms. Abalos, the accountant in Phoenix.

Business owners considering a tax shelter might consider, at a minimum, obtaining a second opinion on the legality of the structure, according to Kevin Brown, commissioner of the I.R.S. division for small businesses and self-employed people. It should raise red flags if the promoters of the tax shelter discourage this practice, he said.

And that might help small businesses avoid Mr. Anthony's predicament. To repay the debt to the I.R.S., Mr. Anthony said he took out "a second mortgage on my clinic and took penalties on my investments." At age 40, Mr. Anthony said, "I've had to start over again."

[FaGal]

New Report Highlights KPMG's Tax Shelters

AccountingWEB.com - February 14, 2005 - KPMG says it “regrets its participation” in four tax shelters studied by a Senate subcommittee, which on Thursday released new details about how the accounting firm developed and sold the products being investigated.

The Permanent Subcommittee on Investigations, in its second report on questionable tax shelters, noted that a KPMG senior executive said in a 2003 hearing that the firm did not have the technical capability to track sales and revenues from the tax shelter sales, the New York Times reported. However, the subcommittee obtained a June 2001 document from KPMG, showing how the firm categorized revenues by six geographic regions for a questionable shelter called SC2, or S-Corporation Charitable Contribution Strategy. The IRS banned SC2 early last year.

The document stated that total SC2 revenue from April

2000 to mid-2001 was $20.1 million. Another KPMG document showed the Tax Services Practice earned $829 million in fiscal year 1998, which increased to $1.2 billion in fiscal year 2001.

In a statement Thursday, KPMG said that while the new report "acknowledges cultural, structural and institutional changes to KPMG's tax practices" in recent years, KPMG "nevertheless regrets its participation in them." KPMG spokesman George Ledwith said “them” referred to the four tax shelters examined by the subcommittee in late 2003. The Justice Department and the Internal Revenue Service are investigating KPMG, which is cooperating.

The new report also said that the $10 billion Los Angeles Department of Fire and Police Pensions and the $400 million Austin Fire Fighters Relief and Retirement Fund in Texas participated in more than half of KPMG's 58 deals for SC2 from 1999 to 2002.

The report proposed that federal bank regulators, working with the IRS, review and monitor tax shelter activity at major banks and that the Securities and Exchange Commission do the same for investment advisory and securities firms.
http://www.accountingweb.com/cgi-bin...=%B%20%e,%20%Y

[FaGal]

Tax Shelters and Corporate Debt Policy


JOHN R. GRAHAM
Duke University
ALAN L. TUCKER
Pace University - Lubin School of Business


Abstract:
We use a novel sample of 44 tax shelter cases involving public corporations to investigate which types of firms shelter, the magnitude of the tax shelters they use, and whether participating in a shelter affects corporate debt policy. The propensity to shelter increases with firm size, profitability, R&D expenditures, foreign operations, and the market to book ratio. The average deduction produced by the shelters in our sample is very large, equaling approximately nine percent of asset value. This is about three times as large as interest deductions for comparable firms.

Our results suggest that corporations substitute away from debt when using tax shelters. Seven years before they engage in sheltering activity, shelter firms have mean debt ratios of about 25 percent, roughly equivalent to matched firm debt ratios. By the year of the sheltering activity, shelter firm debt ratios have fallen to approximately 18 percent while matched firm debt ratios have not fallen. These results help explain why some firms appear to be under-levered when tax-sheltering activity is ignored, and also why corporate tax payments have fallen so precipitously in recent years.
http://papers.ssrn.com/sol3/papers.c...#PaperDownload

[FaGal]

IRS Chief Counsel Korb Offers Historical Overview of Tax Shelters

In a paper prepared in December 2003 before he became IRS chief counsel, Donald L. Korb provides a 46-page historical overview of the tax shelter problem, Schemes, Shelters and Abusive Transactions,
http://www.lawprofessorblogs.com/tax...005-2963-1.pdf

Lee A. Sheppard (con Martin sullivan i miei esperti fiscali oltreoceano prediletti) has published Shelter Penalties: Or Else What? Part 3, also available on the Tax Analysts web site as Doc 2005-3055, 2005 TNT 30-5. Here is part of the introduction:

At the ABA Section of Taxation meeting in San Diego on January 22, the authors of Circular 230 showed up at the Standards of Tax Practice Committee to take questions about it. Other officials talked about it at other committees. While their responses were not always responsive, they do shed some light on the application of this regulation to practitioners with business clients. Plus there was a hypothetical that did not involve college savings accounts. This article is in question-and-answer format.
http://www.lawprofessorblogs.com/tax...02005-3055.pdf

[FaGal]

Dirty dozen tax scams

Don't get scammed by someone who thinks you can dupe the tax man.

Source: CNN

March 1, 2005: 5:25 PM EST

NEW YORK (CNN/Money) - There are two things that you just can't avoid: death and taxes.

No one is clever enough to escape the former but many think they can avoid the latter. Catching the IRS off guard, however, is becoming harder.

The agency has lately dedicated more funds to enforcement, making it easier to find those who try to hide their money.

The IRS keeps tabs on different types of tax evasion schemes and recently released its annual list of top 12 scams. The so-called Dirty Dozen includes a few new tricks as well as some familiar faces.

"The Dirty Dozen is a reminder that tax scams can take many forms," IRS Commissioner Mark Everson said in a statement. "Don't be fooled by false promises peddled by scam artists. They'll take your money and leave you with a hefty tax bill."

With that in mind, here are 12 things that you don't want to do:

Abuse that trust. Setting up a trust for the sole purpose of reducing your tax bill may land you a date in tax court. Numerous con artists and their victims have been prosecuted and the IRS says it is actively examining these types of agreements.

Fall for frivolous, and fictitious, arguments for not paying taxes. There are no constitutional protections against taxes. Arguments citing the Fourth, Fifth, and Sixteenth Amendments have been thrown out of court. That's not to say you cannot contest your tax liabilities, but don't look for an excuse not to pay.

Believe in a sure thing. Even top number-crunching CPAs cannot guarantee their clients a refund. An absolute promise that you'll get one -- before a preparer evaluates your situation -- is often a ruse used by ethically challenged preparers trying to drum up business.

Accept bad counsel. A number of tax-exempt credit counseling agencies claim they can work out a debt repayment plan with your creditors or improve your score. Many of them charge exorbitant fees for very little service. The IRS is stepping up audits for such organizations.

Deduct it all. The so-called "claim of right" doctrine advises taxpayers to deduct their wages as "a necessary expense for the production of income" or as "compensation for personal services actually rendered." Either way, the IRS doesn't buy it.

Eliminate your gains. Some filers attempt to wipe out their entire adjusted gross income (AGI) by deducting it under "Other Miscellaneous Deductions" on form Schedule A, attaching a sheet saying "No Gain Realized."

Start your own "church." Legitimate religious leaders can legally separate their finances from that of their church. Establishing the Church of You doesn't meet this criteria nor does it let you escape from federal taxes, child support or other personal debts.

Share your identity with others. The IRS says there are several ID theft scams involving taxes, ranging from "phishy" e-mails to abusive tax preparers using their clients Social Security numbers to file false returns. The IRS says it does not contact taxpayers via e-mail about issues related to their accounts. If you are ever unsure whether a correspondence from the IRS is legit, you can call the agency at (800) 829-1040.

Be charitable with your deductions. Moving assets or income to a tax-exempt organization or donor-advised fund while maintaining full control over the money does not entitle you to a deduction.

Offshore your money. Stashing money in an offshore bank or brokerage account, using foreign trusts or credit cards to shield your income from Uncle Sam is illegal. The IRS has partnered with state tax agencies in and those of U.S. possessions to crack down on these types of transactions.

Have nothing to show. Some filers enter zero income, but report their withholding and then write "nunc pro tunc" -- Latin for "now for then" -- on their return. It may as well be Greek because the IRS will still come after you.

Shield your employees from taxes. Unless your employees are independent contractors, you need to withhold taxes and pay employment taxes. And employees who have nothing withheld from their wages are still responsible for paying income tax.



Find this article at:
http://money.cnn.com/2005/02/28/pf/t...cams/index.htm

[FaGal]

KPMG offers apology over illegal tax shelters
Source: www.boston.com, By Reuters, June 17, 2005


NEW YORK -- KPMG LLP, one of the Big Four accounting firms, apologized yesterday for helping to set up illegal tax shelters, a move that could help it avoid a criminal indictment like the one that destroyed Arthur Andersen three years ago.

Federal prosecutors have been investigating certain tax services that were offered by KPMG to some of its wealthy clients between 1996 and 2002.

''KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred," the audit firm said.

A Justice Department spokesman declined to comment, but The Wall Street Journal reported that prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The paper, citing unnamed lawyers briefed on the case, said top department officials are debating now whether to seek an indictment of KPMG.

KPMG said it has taken stringent measures to change its culture and structure and other steps to see that those responsible for wrongdoing have left the firm.

Some accounting experts said that an indictment of KPMG would not bode well for the accounting industry. Dozens of top-notch corporations had to scramble around the world to find an auditor after Arthur Andersen was brought down by an indictment over its role in the accounting fraud committed at Enron Corp.

Robert Willens, accounting industry analyst at Lehman Brothers, doubted whether prosecutors would take the extreme step of indicting KPMG.

''Certainly I don't think they'd be looking to indict them," he said. ''Not because they don't think they might be indictable, but because it just doesn't make sense to do that to KPMG's clients and to narrow the choices for corporate America down to three major firms."

Apart from KPMG, federal authorities are also investigating Ernst & Young. An Ernst & Young spokesman declined to comment on the status of the probe.

Richard Smith, the KPMG executive who headed the firm's tax practice during at least some of the period covered by the investigation, resigned last year, about two years after having moved to be KPMG's chief financial officer.

[FaGal]

Travails in Tax: KPMG and the Tax-Shelter Controversy


TANINA ROSTAIN
New York Law School



NYLS Legal Studies Research Paper No. 04/05-25
LEGAL ETHICS: LAW STORIES, Deborah L. Rhode & David J. Luban, eds., Foundation Press, 2005


Abstract:
This chapter tells two stories: the story of KPMG's emergence as an industry leader in the tax shelter market and the story of Mike Hamersley, a lawyer at the firm, who ultimately exposed its tax shelter activities after he was pressured to participate in an audit he believed to be fraudulent. From the late 1990s into the next decade, KPMG devoted significant resources to developing and mass marketing hundreds of abusive tax shelters. These products were designed to enable their purchasers - typically high wealth individuals and Fortune 500 companies - to avoid paying taxes on the huge financial gains they enjoyed during the stock market boom. Abusive tax shelters deprived the Treasury of tens of billions of dollars in lost tax revenue. KPMG, which made hundreds of millions of dollars from its tax shelter business, was by no means the only large accounting firm involved, but is likely the firm in the most trouble. After its tax shelter activities came to light, the Justice Department launched a criminal investigation, focusing on some thirty current and former partners and employees, many of them lawyers. KPMG's fall from grace offers a cautionary tale about the risks of law practice in large professional organizations in the 21st century. On an institutional level, it illustrates how business rationality can displace professional norms, a process accelerated at the firm by its enormous size, organizational structure, and deeply conformist culture. On an individual level, the KPMG story also provides a lesson in the growth of self-knowledge and personal accountability. Hamersley managed to avoid the processes of group-think and self-rationalization to which his colleagues succumbed, but he did not leave the firm early enough to avoid being put to the choice between engaging in conduct he believed was criminal or becoming a whistleblower and risking his career, reputation, and economic security in the process.


il report qui
http://papers.ssrn.com/sol3/papers.c...ract_id=724321

[FaGal]

KPMG Judge Questions Legality of Tactics


May 11, 2006 (Associated Press) -- A federal judge Wednesday questioned the constitutionality of a government policy that defense lawyers say pressures companies like the KPMG accounting firm to stop paying legal fees for those who do not cooperate with prosecutors.

U.S. District Judge Lewis A. Kaplan said he might consider forcing the accounting company to pay legal fees for those accused in what the government has described as the largest criminal tax case ever, a fraud that helped the wealthy escape $2.5 billion in U.S. taxes.

Kaplan convened the hearing to determine whether any rights were violated by the 2004 probe that led to criminal charges against former partners and managers at the company.

The judge said he will consider whether a document relied upon by prosecutors as they built a criminal case against 16 former KPMG employees might have interfered with the defendants' rights to legal representation.

When a prosecutor, Marc Weinstein, said the document written in 2003 by Larry D. Thompson, a former deputy attorney general, did not advise companies that they risk indictment by paying the legal fees for all employees, the judge cut him off.

Kaplan said if what Weinstein said was accurate, then the Department of Justice in Washington chose poor wording of the document and "it's time they start all over again because that's sure not what they've said to the defense bar."

Lawyers for the defendants say the rights of their clients to defend themselves have been spoiled by heavy handed prosecutors who discourage colleagues of the defendants from helping defense lawyers build their case.

Kaplan acknowledged that prosecutors sometimes need to "play rough," but questioned whether they went too far this time.

KPMG LLP has signed a deal admitting its role in the tax-shelter scheme. It avoided criminal prosecution as it agreed to continue cooperating and to pay a $456 million fine, including $128 million in forfeited fees from sales of the shelters.