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| Dennis M. Nally is the Chairman and Senior Partner of PricewaterhouseCoopers LLP |
Bloomberg News reports that PricewaterhouseCoopers LLP, the world's largest accounting firm, is being audited by the US Internal Revenue Service for potential violations in reporting its own taxes, according to IRS and company documents.
The business news service says that the IRS is evaluating the timing of tax deductions, PricewaterhouseCoopers' pension plan, and how the firm moved profits between international units, said a person briefed on the audit. The review may be completed later this month and the IRS is expected to reach its conclusions by the end of the year, PricewaterhouseCoopers' tax partner Samuel Starr said in a June 15 letter to the New York-based firm's 2,000 U.S. partners, who could be liable for any back taxes.
Starr is also an Adjunct Professor of Law at Washington D.C.'s Georgetown University. His letter to partners said that the IRS audit began in January of 2005. Two months earlier, a former employee at the firm, Timothy Laurent, sued PricewaterhouseCoopers, alleging it misused a cash-balance plan as a tax shelter.
The IRS review may cost partners at PricewaterhouseCoopers ``scores of millions'' of dollars, Bloomberg quotes Robert Willens, a tax and accounting analyst at Lehman Brothers Holdings Inc. in New York.
``If the pension plan were to be disqualified, the results would be potentially nuclear,'' said Richard Susko, a pension attorney and partner at the New York law firm of Cleary, Gottleib, Steen & Hamilton. PricewaterhouseCoopers could lose deductions it took on contributions to the pension plan, though the IRS probably will ``work out something less draconian,'' he said, according to Bloomberg.
KPMG's Tax Shelter Troubles
In August 2005, KPMG - the fourth largest accounting firm in the US - agreed to pay a $456 million fine to head off a potentially fatal criminal indictment for marketing fraudulent tax shelters to US clients.
KPMG had faced the prospect of a similar fate to Arthur Andersen, the accounting firm that collapsed after prosecutors charged it with obstruction of justice in their investigation of failed energy trader Enron, an Andersen client.
The $456 million fine included $128 million in forfeited fees that KPMG earned by selling the fraudulent tax shelters.
KPMG has about 1,600 US partners and audits the books of more than 1,000 companies including General Electric Co. and Pfizer Inc. Each partner's share of the fine is about $300,000.
The settlement agreement provided that the fine will be paid in instalments over the course of the year.
KPMG has accepted an outside monitor of its operations and makes a strong acknowledgment of wrongdoing.
Federal prosecutors released an indictment of nine men -- eight former KPMG executives and an outside tax lawyer who worked with the firm -- charging them with conspiring to defraud the IRS. Among those charged was Jeffrey Stein, who was named deputy chairman of KPMG in April 2002. There was no immediate information on when the nine men would appear in court.
