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Top US Accounting Firm Involved in Tax Fraud

U.S. law enforcement officials have announced several indictments stemming from a massive tax fraud scheme involving one of the top accounting firms in the United States.

Eight former executives with the international accounting firm KPMG have been charged with conspiracy to defraud the U.S. government's tax collection agency, the Internal Revenue Service.

KPMG has agreed to pay a fine of $456 million as part of a settlement on a tax fraud case that investigators say is the largest of its kind.

Federal prosecutors say the eight former executives and an outside tax lawyer who worked with KPMG were involved in a criminal conspiracy to sell fraudulent tax shelters to wealthy clients to help them avoid paying billions of dollars in taxes.

The indictments were announced at a Washington news conference by U.S. Attorney General Alberto Gonzales. "Over a six year period, KPMG and allegedly nine defendants deliberately perpetrated a scheme that generated more than $11 billion of phony tax losses. That scheme enabled wealthy KPMG clients to evade billions of dollars in taxes that they owed on income [taxes] and capital gains [taxes on large assets]. While the firm was earning at least $115 million in fees by defrauding government tax collectors, ordinary citizens were stuck with the bill," he said.

Prosecutors decided to hold off on indicting KPMG itself, one of the world's most prestigious accounting firms, at least through the end of this year, provided it agrees to stop the tax fraud and submit to an independent monitor.

Internal Revenue Service Commissioner Mark Everson said the fraud indictments send a strong message to both the business community and taxpayers. "KPMG's actions were a direct assault on our progressive system of income taxation and left unchecked would have badly eroded the faith of hard working, tax paying Americans in the fairness of government itself," he said.

The judge in the case says KPMG's board of directors has agreed to pay the fine and to abide by the terms of the deferred prosecution agreement. Company Chairman Timothy Flynn issued a statement saying KPMG regrets the tax schemes and that the firm is now stronger from having learned from the experience.