KPMG itself used a tax shelter it pedaled to corporations and that the IRS later found to be an abusive tax-avoidance transaction, according to The Wall Street Journal.
The newspaper reported that the Big Four accounting firm used the shelter — dubbed the 401(k) Deduction Acceleration Strategy, or “401kAccel” — to book a $34 million deduction on its 2001 tax return. Deloitte & Touche, PricewaterhouseCoopers, and Arthur Andersen also at one time sold strategies similar to 401kAccel, the Journal noted.
The strategy was added to the IRS’s official list of abusive transaction in June 2002, the paper reported. KPMG sold 401kAccel to at least 143 companies, which together “claimed undisclosed millions in accelerated tax deductions,” according to the story, which cited a July 2002 court filing by the IRS linked to its probe of KPMG’s shelters.
The accounting firm asserted in a statement that it “made full disclosure of the 401kAccel transaction to the IRS on the firm’s 2001 federal return,” and “took the prescribed corrective measures immediately when the IRS listed the transaction” as abusive.
Internal KPMG records from 1998 through 2002 reviewed by the Journal reportedly show that the major companies that bought 401kAccel from the firm included Circuit City Stores, Allegheny Energy, Pulte Homes, PetsMart, Tenet Healthcare, and the U.S. arm of Mexico-based Cemex S.A.
Circuit City CFO Michael Foss acknowledged that the company used the strategy from 2000 to 2002 and later unwound it without penalty, according to the Journal. “Multiple companies were utilizing the strategy,” he told the paper.
An Allegheny spokesman told the paper the company disclosed its use of the shelter to the IRS in 2000 and afterward. Pulte and PetsMart confirmed to the paper that they had bought 401kAccel but declined to comment further. Tenet and Cemex, which are both KPMG audit clients, refused to comment, according to the report.
In contrast to many other eyebrow-raising tax shelters, 401kAccel didn’t spawn capital losses, the paper explained. Instead, it was promoted as a way for companies to draw future years’ tax deductions into current tax years and hang on to the resulting tax savings in perpetuity. As the name of the shelter implies, the deductions were tied to the 401(k) retirement-savings plans sponsored by the companies.