A regional telecommunications magnate is suing KPMG for allegedly convincing him to adopt an illegal tax avoidance strategy, making the accounting firm the latest to be hit with a lawsuit over tax work for clients.
The lawsuit filed by Peter Loftin, the former head of Raleigh, North Carolina-based regional telecommunications company BTI Communications Inc., comes as the Internal Revenue Service steps up its crackdown on aggressive tax shelters promoted by accounting firms.
The suit, filed in U.S. district court in West Palm Beach, Florida on Dec. 30, also names First Union National Bank, which has since merged with Wachovia Corp. WB.N as a defendant, arguing that it worked with KPMG and helped the accounting firm identify potential clients for tax work it marketed.
The complaint against KPMG alleges that in 1997 the accounting firm pressured Loftin to enter into option trades that created paper capital losses to offset real capital gains on which he would have had to pay taxes.
The lawsuit claims that Loftin wasn't told of the risks involved with such a strategy and that since then, the IRS has audited his 1997 tax return. The suit claims that he will now likely have to make substantial tax repayments plus interest and is subject to penalties.
“We provide tax planning services for clients in an appropriate manner,” said KPMG spokesman Tim Connolly. “We believe the allegations are without merit.” He declined to respond to specific allegations in the lawsuit.
Wachovia did not immediately return a call seeking comment.
The news comes on the heels of a lawsuit filed against Ernst & Young by former clients last month seeking more than $1 billion for also convincing them to also enter into illegal tax shelters that use similar strategies.