A former KPMG LLP tax partner pleaded guilty Monday, admitting the accounting firm enabled wealthy investors to dodge millions of dollars in taxes with fraudulent documents, sham companies and phony tax shelters.
David Rivkin, 42, entered the plea to conspiracy and tax evasion charges in U.S. District Court in Manhattan, agreeing to cooperate in what the Department of Justice has called the largest criminal tax case ever.
He was among 19 defendants charged with conspiracy last year in a tax scheme that the government alleges helped affluent KPMG clients escape $2.5 billion in taxes.
Rivkin said nothing to diminish the scope of the fraud as he described how the company, which serves some of the world’s largest corporations, helped people hide millions of dollars in profits from the Internal Revenue Service.
“The object of the conspiracy was to help wealthy taxpayers significantly and illegally reduce their tax liability to the United States Internal Revenue Service so that they could keep the money for themselves instead of paying the taxes they owed,” said Rivkin, who worked at the firm’s San Diego office as a member of KPMG LLP’s Innovative Strategies Group.
He added that the conspiracy was also meant to ensure “KPMG and other entities could earn significant fees.”
“I knew that the losses should not have been claimed on the tax forms,” Rivkin told Judge Lewis A. Kaplan.
Rivkin admitted that he conspired with others between January 1999 and May 2004 to prepare and execute false documents so that clients could file false tax returns.
He also admitted that he took steps to conceal the existence of fraudulent tax shelters from the government and avoided registering the shelters with the IRS by claiming attorney-client privileges.
He said he was told prior to a marketing meeting with potential clients in Dallas in May 1999 that he was to target individuals with more than $20 million in capital gains for the firm’s tax shelters.
Rivkin said KPMG prepared and approved an opinion letter to be given to each of the clients describing the tax shelters as legitimate when they were not.
“The KPMG opinion letter also contained materially false statements,” he said. “For example, the opinion letter represented that the taxpayer had engaged in a long term investment strategy when, in reality, KPMG’s plan was for the taxpayer to withdraw at the earliest opportunity to claim a phony tax loss.”
In pleading guilty, Rivkin signed an agreement to cooperate with prosecutors, who could then ask the judge to consider giving Rivkin a more lenient sentence rather than the years he might face in prison.
Sentencing was set for Feb. 9, 2007 with the understanding that it would be delayed if the trials of the other defendants were not completed by then.
Rivkin and his lawyer declined to comment outside court.
During his plea, Rivkin admitted that he helped nine clients generate a pretax loss of $235 million to offset asset gains that would otherwise be taxed.
The government said last year that ex-KPMG LLP executives teamed with a former partner at a prominent law firm and another defendant to defraud the IRS.
KPMG LLP is the U.S. arm of KPMG, a worldwide network of professional firms providing audit, tax and advisory services. The larger company operates in 144 countries and has more than 6,700 partners.
KPMG spokesman Tom Fitzgerald declined to comment on the plea Monday.
KPMG LLP already has admitted helping “high net worth” clients evade billions of dollars in capital-gains and income taxes by developing and marketing the tax shelters and concealing them from the IRS. It has paid a $456 million fine, including $128 million in forfeited fees from sales of the shelters.