by Brian Mahany
Last weekend we wrote about STARS, a controversial tax shelter program recommended by accounting giant KPMG. That “star” exploded like a super nova earlier this week when a U.S. Tax Court upheld an assessment of approximately $800 million against Bank of New York – Mellon. Today, Accounting Today reports that another KPMG shelter – SLOTS – is also in jeopardy.
SLOTS is short for Sale Leaseback of Tenant Improvements Strategy. The program was marketed to several corporate clients and netted about $240 million in deductions. When the IRS got wind of the program, things got nasty. Ultimately the IRS and Department of Justice brought criminal charges against one of the lawyers and one of the accountants involved in the transaction. The trial resulted in a hung jury and a subsequent acquittal. That doesn’t mean the civil assessments, interest and penalties go away, however. The two could also lose their right to practice before the IRS as well.
The lesson here is that the IRS will goto great lengths to shut down what it believes are abusive tax shelters. Participate in one and you may find yourself under indictment. More often, participants don’t get charged but do get audited.
With hundreds of millions of tax credits at stake, the IRS will not be easily persuaded to look the other way. Businesses who bought into these schemes will likely see massive penalties. The accounting firms that sold them may see claims for accounting malpractice.
Several SLOTS programs were sold between 1996 and 2006 according to the indictment. An intermediary “tax advantaged investment company” would form a single-purpose entity with little or no assets, which would purchase leasehold improvements. Those improvements would be leased back to the SLOTS client. The accountant named in the criminal complaint arranged for appraisals of the leasehold improvements, and the SLOTS client would purportedly sell the improvement for this amount; an amount the IRS says was significantly less than the value of the improvement reflected on the client’s books.
The difference between the alleged market value and the book value of these leasehold improvements comprised the loss the tax deduction.
Fraud is everywhere. If you think its confined to Internet promoters, you are wrong. Although the two were ultimately acquitted, KPMG is not off the hook. Accountants affiliated with large and otherwise reputable CPA firms shouldn’t be hawking ultra aggressive tax shelters.
We don’t know if any of the businesses that bought the SLOTS program have sued KPMG yet. We do know, however, that we have been seeing record numbers of complaints against accountants and lawyers. Presently we are litigating a $40 million dollar claim against regional CPA powerhouse Plante Moran in Michigan for giving bad advice to a telecommunications company.
Everyone makes mistakes. That includes lawyers and accountants. Whether your financial professional made an honest mistake, missed an IRS deadline or committed fraud, you do have recourse. Few law firms specialize in accounting and legal malpractice cases. We are unique in that we are both a tax firm and fraud litigators. We understand malpractice and understand abusive tax shelters.
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