Trial set to Begin in NY Tax Shelter Case

From NewsDay.com:

It was a prosecution once touted as the biggest tax fraud case in history. Now four remaining KPMG defendants are going on trial, accused of conspiring to help at least 600 wealthy people evade more than a billion dollars in taxes.

There were once 19 defendants, most of them former partners at the accounting giant. Two cut deals with prosecutors. Charges against the rest were dismissed after U.S. District Judge Lewis A. Kaplan concluded that prosecutors had unfairly pressured KPMG to break promises to pay employee legal expenses.

The three former KPMG executives and a lawyer who remain in the case are charged with conspiring to obstruct the Internal Revenue Service, evading taxes and filing false tax returns. The trial, with jury selection on Tuesday, is scheduled to last four months or longer.

Prosecutors say the men conspired to market complex tax shelters from 1997 until 2000 to wealthy individuals who wanted to dodge taxes.

In court papers, lawyers said the defendants acted legally and that any questionable tax shelters were challenged by the IRS and appropriate taxes were paid.

The defense said the government was seeking "to poison the jury with allegations of tax evasion far beyond anything it can or will even try to prove."

Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends

Earlier in the day, the Senate Permanent Subcommittee on Investigations issued a new report titled, “Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends.” Below is the introduction, but you can download a PDF of the 77-page study by clicking here.

Each year, the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses. The U.S. Senate Permanent Subcommittee on Investigations has examined various aspects of this problem, including how U.S. taxpayers have used offshore tax havens to escape payment of U.S. taxes. This Report focuses on a different subset of abusive practices that benefit only non-U.S. persons, have been developed and facilitated by leading U.S. financial institutions, and have been utilized by offshore hedge funds and others to dodge payment of billions of dollars in U.S. taxes owed on U.S. stock dividends.

Using phrases like “dividend enhancement,” “yield enhancement,” and “dividend uplift” to describe their products, U.S. financial institutions have developed, marketed, and profited from an array of transactions involving multi-million-dollar equity swaps and stock loans whose major purpose is to enable non-U.S. persons to dodge payment of U.S. taxes on U.S. stock dividends. In addition, many of the offshore hedge funds that have benefited from these abusive transactions appear to function as shell operations controlled by U.S. professionals who are helping them dodge U.S. dividend taxes. Six case histories illustrate the scope and nature of the offshore dividend tax abuse problem.