A Recent and Shocking Tax Shelter Scam

Physician's Money Digest, February 2007, Volume 14, Issue 2

Putting all your trust and money in the hands of someof the most reliable financial management companies outthere could still burn you—especially when you fail toresearch the validity of marketed tax shelters. "The bestand one of the most recent examples is one that actuallycame from the most unlikely of sources," says Wandel.According to a news release by the IRS this past summer,a very reputable certified publicaccounting firm admitted to criminalwrongdoing last year and agreed topay up to $456 million in fines, restitution,and penalties as part of a pleabargain. In the largest criminal taxcase ever filed, KPMG admitted toparticipating in a fraud that generatedat least $11 billion in phony taxlosses which, according to court papers, cost the UnitedStates at least $2.5 billion in evaded taxes.

"The IRS has also collected over a billion dollars fromtaxpayers who participated in the schemes that wereoffered," Wandel says. "Apparently, principals within thefirm failed to heed the advice of their own tax experts andwent forward with a scheme of designing, implementing,and marketing illegal tax shelters."

Four shelters were developed between 1996 and 2003called FLIP, OPIS, BLIPS, and SOS. According to the newsrelease, the IRS reported that, "KPMG also admitted thatits personnel took specific deliberate steps to conceal theexistence of the shelters from the IRS by, among otherthings, failing to register the shelters with the IRS asrequired by law; fraudulently concealing the shelter lossesand income on tax returns; and attempting to hide theshelters using sham attorney-client privilege claims."

Although nine defendants—including six former KPMG partnersand the former deputy chairmanof the firm—are being criminallyprosecuted for the tax fraudconspiracy, penalties still fall in thelaps of the participants. The IRShas collected more than $3.7 billionfrom taxpayers who wereinvolved in a parallel civil global settlement initiativecalled Son of Boss. The BLIPS and SOS shelters werepart of that family of tax shelters.

While a good name and a solid reputation are plausiblereasons to trust a company or an advisor, you canstill fall victim to illegal tax planning—something the IRSdoes not take lightly.

(Source: IR 2005-83, 8/29/2005.) To read the news release,visit www.irs.gov/newsroom/article/0,,id=146999,00.html.