That is the crucial point. All the *** tax breaks I know of required the taxpayer to demonstrate that he or she had a profit motive, regardless of the tax consequences. But Baldwin admitted it was his lie. His personal representation to KPMG was a lie. (******** is a nod to Dr. Townsend`s characterization) On August 29, 2005, the Department of Justice, the IRS and KPMG LLP (KPMG) announced that an agreement had been reached with the United States Attorney`s Office for the Southern District of New York that would settle the grand jury`s investigation into tax havens designed, developed, sold and conducted by KPMG from 1996 to 2002. The regulation also resolved the IRS`s review of these activities. KPMG and the government entered into a Deferred Prosecution Agreement (DPA) under which KPMG acknowledged responsibility for participating in a massive tax fraud conspiracy that caused at least $11 billion in fraudulent tax losses that cost the government at least $2.5 billion in evaded taxes. On October 15, 2008, preliminary arguments for the trial of David Greenberg and Robert Pfaff, former tax partners at KPMG, began; John Larson, former Senior Tax Director at KPMG; and Raymond Ruble, a former partner at sidley Austin. The four defendants are accused of conspiring to evade tax for more than 600 clients in a case billed as the largest tax lawsuit when it began in 2005 with 19 defendants, but which is being tried on a much smaller scale. U.S. Attorney John Hillebrecht told jurors in Manhattan federal court that the four men lied and cheated “by wiping out the tax bills of some of our nation`s wealthiest citizens.” In return, Larson`s defense attorney, Thomas Hagemann, said his client believed in good faith that what he was doing was authorized by law, conducted his business openly and acted with “good faith disclosure.” Hagemann called David Makov, a former colleague of Larson`s who became one of the government`s leading witnesses, a “liar and perjury.” The study is expected to last three to four months. In addition, Tween said companies are increasingly required to waive the privileges of lawyer clients and lawyers` work products as part of their cooperation agreement with efforts to prosecute individual employees.
“The government is increasingly requiring companies to waive these privileges and disclose findings and reports of internal investigations to get companies to show good faith,” Tween said. Although a deal with the DoJ avoided criminal charges, KPMG still faces civil charges related to its previous sales of tax havens. Under the DPA, Big Four agreed to pay $456 million and submit to the oversight of an independent monitor who will remain in office until September 2008. The company also had to admit that it had defrauded the government and the Internal Revenue Service by filing false tax returns; Helping high net worth clients evade federal income tax by creating, selling and setting up fraudulent tax havens; and knowingly expressed opinions about tax havens, which contained, among other things, false information. The accounting firm still faces civil lawsuits from former clients to whom tax havens were sold between 1996 and 2002. Among the defendants is Jeffrey Stein, who was appointed vice-president of KPMG three years ago. If the various lawsuits are brought to court, the company could also experience years of embarrassing revelations. The new year began with a symbolic victory for Big Four KPMG, when a federal judge dismissed a criminal conspiracy charge against the U.S. branch of the Big Four for conspiracy to sell illegal tax havens.
The charges were dropped after prosecutors said the company had fulfilled its obligations under a deferred prosecution agreement reached with the government about 18 months ago. On September 10, 2007, Makov pleaded guilty to conspiracy. He agreed to pay a $10 million fine and provided new details about those involved. Makov gave a brief explanation of how BLIPS or Bond Linked Emission Premium Structure works, which he said he helped create. In previous hearings, Judge Kaplan had reprimanded prosecutors for not clearly explaining how BLIPS worked. According to Makow`s statement, BLIPS shelters were created to generate artificial losses, which were then used by wealthy investors to offset the profits of legitimate incomes. The safe haven included an alleged investment component as well as banks that provided alleged loans to investors. According to prosecutors, BLIPS was marketed and sold to at least 186 wealthy investors around 1999 and 2000, generating at least $5.1 billion in false tax losses.
The Presidio units that Makov founded, owned and operated with co-defendants Robert Pfaff and John Larson, both former KPMG employees, raised at least $134 million with the sale of BLIPS. The IRS considers a tax exemption to be abusive if it has no legitimate business purpose or real economic substance, as opposed to actual loans, with risky money or real investments. According to Makov, although the BLIPS were created on paper to look like seven-year investments, they did not include actual loans or actual investment components. “There was no economic substance,” Makow testified. “Instead, we have created the appearance of economic substance, not reality.” Makow claimed that although he initially thought BLIPS was legitimate, “as part of the deception,” it was eventually “asked by representatives of Bank A,” among other things, to “develop an investment rationale.” He added that Bank A, KPMG and others had “made it clear” to him that the loan was not at risk. According to the New York Times, people familiar with the case have identified “Bank A” as Deutsche Bank AG. The bank has not been debited, but it is expected to reach an agreement with the government. .