Accounting giant KPMG collected an estimated $180 million in fees from just four strategies it aggressively marketed to wealthy taxpayers at the height of the stock market boom, a congressional staff investigation concludes.
From 1997 to 2001, an estimated 350 clients bought the strategies, which resulted in billions in questionable tax write-offs. Three of the plans involved manufacturing tax losses through low-risk investments. A fourth is based on deductible, strings-attached contributions to select charities.
The highly critical report issued Tuesday zeroes in on KPMG as part of a broader problem with what it calls abusive tax shelters. The shelters are peddled not only by fly-by-night tax advisers, but by respected accounting firms. In all, officials estimate abusive shelters cost the government $85 billion — a sum, noted Sen. Norm Coleman, R-Minn., that roughly matches the amount of tax money recently approved for rebuilding Iraq.
The report, by the Senate investigations subcommittee staff, criticizes KPMG's aggressive marketing tactics to sell tax shelters to individuals. Among the tactics cited: turning its tax professionals into salespeople who had to meet revenue targets, seeking clients through telemarketing, pitching audit clients and using confidential tax data to identify sales leads.
Under persistent questioning by Sen. Carl Levin, D-Mich., at a hearing Tuesday, KPMG officials acknowledged no wrongdoing but said the aggressive marketing was a temporary phase at the firm that has since passed. Then firm also estimates smaller fee collections for the four strategies — $124 million.
KPMG partner Jeffrey Eischeid said the firm no longer markets off-the-shelf tax strategies such as those cited in the report, and instead tailors advice to a client's situation. They were offered, he said, when the economy and the stock market were creating “unprecedented personal wealth,” and demand was high for creative tax strategies.
The report and testimony focused largely on one KPMG product known as BLIPS — Bond Linked Issue Premium Structure. Marketing began in 1999, and continued until September 2000, when the IRS listed it as potentially abusive. Senate investigators estimate it generated $80 million in fees for KPMG from 186 clients. It lost the U.S. Treasury more than $1.4 billion, the report says.
The Senate panel is scheduled to hear Thursday from IRS Commissioner Mark Everson and federal regulators of banks and accounting firms.