WASHINGTON - The Internal Revenue Service is demanding data from dozens of banks, accounting firms, law firms and other financial advisers on clients who seek to avoid taxes.
The IRS has issued 150 summonses since late January as part of a crackdown on sophisticated accounting that companies use to avoid taxes, such as through offshore entities, said David Harris, manager of the IRS tax shelter analysis office.
Several requests have been referred to the Justice Department for possible court action, he said. The department sued KPMG LLP and BDO Seidman LLP last month to force compliance with the summonses for records and testimony related to tax-avoidance deals.
"Many let us know they were not going to comply," said Harris of the targets of the requests, some of which received 10 or more summonses, covering different transactions and clients.
Some of the requests were triggered by disclosures made by companies or individuals. The law requires disclosure if certain tax-avoidance transactions are involved. Also to be disclosed are names of the tax adviser and the entity seeking the tax advice, Harris said.
KPMG and BDO Seidman have resisted the government's requests, saying they have a professional duty not to disclose privileged client information.
KPMG spokesman George Ledwith said the accounting firm has "worked cooperatively with the IRS" and "believes it has legitimate disputes with the IRS about these summonses."
BDO Seidman said in a statement that it and the IRS disagree as to what documentation the service is "entitled to under the law."
Harris said IRS rules prohibit him from identifying which companies or firms had been sent summonses or might be sued.
Transactions that used sophisticated financial advice from large banks, accounting firms or law firms - or all three - were among those targeted by the program, he said.
Enron Corp. and Dynegy Inc., sued by shareholders for misstating their finances, have hired such advisers to achieve accounting or tax goals through the use of off-the-books entities and offshore companies. Harris declined to say whether the tax advisers for those companies had been issued summonses.
In June, PricewaterhouseCoopers LLP, the largest accounting firm, reached a settlement with the IRS, making "a substantial payment" to the tax agency to resolve issues related to turning over client data.
According to a statement released by PwC, the accounting firm turned over certain client information to the IRS but declined to discuss what data were involved or how much had been paid to the tax agency.
Federal tax law requires tax advisers, such as banks or accounting firms, to record the names of investors who are given tax advice on types of transactions on a published IRS list.
The advisers also must register any financial products on that list or disclose transactions that generate designated levels of tax benefit, especially if their advice was given on a confidential basis. Companies must disclose on their tax returns any tax-avoidance transactions they have engaged in, based on the same list.
In last year's tax returns, 99 corporate taxpayers disclosed 272 transactions that may have involved "abusive tax avoidance," said a March IRS report on the crackdown program.
"Based on other information, the Treasury Department and the IRS have reason to believe that a far greater number of listed transactions were undertaken," the report says.