SUMMARY

Summary



Summary

Resaerch Paper 1

This section will discuss a business dispute between KPMG and the IRS. It will identify the "legal issue in dispute" as well as the legal process that was used to resolve the issue, and "how that process fits into the court structure" (Augenstein 2005:12-20). Then, it will explain the civil and criminal aspects of the dispute. The paper will "compare and contrast possible outcomes if the dispute could be heard in both a criminal and a civil case", while addressing the differences between these types of actions (Augenstein 2005:12-20).

On August 26, 2005, the Justice Department and KPMG settled their longrunning dispute over KPMG's aggressive tax shelters. After over seven years of legal battle, KPMG "admitted to criminal tax fraud and agreed to pay $456 million in penalties" (((Business Week 2005:74-80) 2005:74-80)). The government is deferring prosecution and will drop the case after Dec. 31, 2006 if "KPMG stays out of the shelter business and cooperates with prosecutors in related cases" ((Business Week 2005:74-80)). If the case is dropped, KPMG will not be responsible for paying the hefty fine. Meanwhile, the government has also charged eight former KPMG partners and an outside lawyer in the case, which "is sure to send shock waves through the accounting and legal professions" by putting individuals on notice "that they are no longer immune to government prosecution" ((Business Week 2005:74-80)). This paper will discuss the legal issues at the center of the KPMG dispute, focusing on the legal processes of both the criminal and civil components to the case.

Accountants owe a duty to "use reasonable care, knowledge, skill, and judgment when providing auditing and other accounting services to a client" (Cheesman 2004:15-20). An accountant's actions "are measured against those of a reasonable accountant in similar circumstances" (Cheesman 2004:15-20). Accountants are expected to follow both generally accepted accounting principles (GAAPs) and generally accepted auditing standards (GAASs). A civil case can be filed alleging negligence can be filed against an accountant who fails to meet his or her obligations under GAAP and GAAS, as well as against the accountant's firm. A civil action can result in substantial penalties, and may include both compensatory and punitive damages. Federal law also provides for criminal penalties for violating accounting standards. The 1976 Tax Reform Act "imposes criminal liability on accountants and others who prepare federal tax returns" (Cheesman 2004:15-20). This criminal liability extends both to individuals and companies, although the federal government has not usually brought charges against partners in the past. In the case of abusive tax shelters, it has often been difficult for court's to "draw sharp lines between legitimate tax planning and illicit shelters", as "most abusive shelters are based on legal tax-planning techniques- but carried to extremes" ((Business Week 2005:74-80)). However, a finding of criminal liability on the part of an accounting firm could lead to substantial monetary damages and for all intents and purposes could put a firm out of business. In the case of an individual, a finding of criminal liability could ...