WASHINGTON (AP) — Accounting firm KPMG LLP must disclose some of its private dealings with clients so that a judge can decide whether the government can use that information as part of a broader effort to root out improper tax shelters.
The firm was one of two companies sued this summer over tax-shelter paperwork.
Chief U.S. District Judge Thomas Hogan said in an opinion on Dec. 20 that an initial review indicates that many of the documents are correspondence related to tax return preparations and are not confidential as KPMG claims.
Hogan ordered KPMG to turn over the documents to Patrick Attridge, a retired judge who is helping Hogan handle the large volume of paperwork. Attridge will review them and report back to Hogan.
Some of the issues in dispute involve letters to clients, memos between employees about tax advice, and e-mails about business strategy. The Internal Revenue Service wants the information to crack down on businesses that use improper strategies to reduce their taxes.
The tax code requires promoters of tax shelters to register each tax shelter with the IRS before offering it for sale, the Justice Department says. Tax shelters, some of which are legal, are ways people and businesses can shield income from taxation or take advantage of greater tax deductions. The United States loses an estimated $10 billion a year to tax shelters.
The suit against KPMG, the fourth-largest auditor, was filed by the Justice Department on behalf of the IRS in July in a federal court in Washington. A similar case filed on the same day is pending in a Chicago federal court against BDO Seidman LLP, the sixth-largest auditor.
KPMG said that it has cooperated with the IRS, turning over more than 400 boxes of documents from the firm's 100 offices around the country. The company complained that IRS demands over the past five months are “extremely broad, incredibly burdensome, and in many respects, unenforceable,” according to court records.
At issue in the court case are papers the company wants to keep private because of attorney-client privilege and other grounds.
Hogan said that logs of 30 contested KPMG documents were studied. Only four documents appear to be confidential, he said in the opinion. He will decide later if the IRS can have the papers.
A company spokesman, Bob Zeitlinger, said Tuesday that Hogan's decision was not final.