Former KPMG partner Robert Pfaff was charged in a two-count indictment with participating in a conspiracy to defraud the Internal Revenue Service by concealing tax-shelter fee income, and with conspiring to defraud a company based in Saipan.
The indictment was announced jointly by the IRS and Michael Garcia, U.S. attorney for the Southern District of New York, who also said there were civil charges against Pfaff seeking the return of more than $1.8 million in proceeds from the alleged scheme.
Attempts by CFO.com to reach Pfaff, a resident of Englewood, Colo., were unsuccessful.
In October 2005, Pfaff had been among 19 individuals named in a superseding indictment described at the time as the largest criminal tax case ever filed. The 19 were charged with conspiracy to defraud the IRS, tax evasion, and obstruction of federal tax laws arising out of illegal tax shelters marketed by the Big Four accounting firm and others.
Last July, charges were dismissed against 13 former KPMG executives after the judge determined their former employer shouldn’t have refused to pay their legal fees. The decision followed U.S. District Judge Lewis Kaplan’s ruling in 2006 that prosecutors violated the constitutional right to legal representation for many of the former employees by pressuring the accounting firm not to pay their legal bills.
According to the new indictment, between 1993 and 2002 Pfaff and others arranged for various entities and individuals — including individuals in the Philippines and Norway, and senior officers of the company in Saipan, which is part of the Commonwealth of the Northern Mariana Islands — to participate with U.S. and Saipan taxpayers in certain tax shelter transactions.
The tax shelter transactions, including those involving the Saipan concern as a corporate taxpayer, resulted in millions of dollars of fees generated by, and subsequently divided among, the designers, marketers, and implementers of the tax shelter transactions, including Pfaff.
Between 1993 and 2000, Pfaff received more than $3.75 million in fees from those tax shelter transactions, according to the announcement. He allegedly used the money for personal expenses such as buying Colorado residences in Englewood and Breckenridge, a home for his mother in Wisconsin, and various automobiles, including a Porsche for himself, a Mercedes Benz for his sister, and a Subaru for his wife. He also allegedly purchased mutual funds and fund trusts for his children, while making gifts to family members and paying initiation fees at his Denver-area country club, renovating and landscaping, pay dentist bills, and purchase a Steinway piano and Hawaiian artwork.
Pfaff — charged with one count of conspiracy to defraud the U.S. and to commit tax evasion and wire fraud, and one count of endeavoring to obstruct and impede the IRS — faces a maximum sentence of five years in prison on the conspiracy count, and three years in prison on the IRS obstruction count. He also faces, on each of the counts, a fine calculated at twice the gross gain or loss from the offenses, or $250,000, depending on which is greater.