Eight former executives of KPMG were indicted yesterday as the Big Four accounting firm admitted it had set up fraudulent shelters to help...

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NEW YORK — Eight former executives of KPMG were indicted yesterday as the Big Four accounting firm admitted it had set up fraudulent shelters to help rich clients dodge billions of dollars in taxes.

The firm, mindful of how criminal charges wrecked competitor Arthur Andersen in an Enron-related accounting scandal, avoided an indictment but agreed to pay $456 million in penalties.

The Department of Justice called it the largest criminal tax case ever filed and said the KPMG scam allowed the firm’s clients to avoid paying $2.5 billion in taxes.

Internal Revenue Service Commissioner Mark Everson said the firm’s conduct had exceeded “clever lawyering and accounting” and amounted to plain theft.

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“Accountants and attorneys should be pillars of our systems of taxation, not the architects of its circumvention,” Everson told reporters in Washington, D.C.

The eight former executives, most of them one-time KPMG tax partners, were indicted in New York along with an outside lawyer who had worked with the firm on a charge of conspiring to defraud the IRS.

Under the scheme, KPMG marketed the tax shelters to clients who made more than $10 million in 1997 and more than $20 million per year from 1998 to 2000, according to the indictment of the nine men.

Rather than paying tax on income or capital gains, the client could choose an amount of purported tax losses to offset the gains, paying KPMG and law firms as much as 7 percent of that amount in fees.

Among those charged was Jeffrey Stein, who was named deputy chairman of KPMG in April 2002.

His lawyer did not immediately return a call for comment.

Another was Jeffrey Eischeid, whose lawyer, Stanley Arkin, strongly criticized the government for bringing the case.

“The indictment of Jeffrey Eischeid and certain of his partners represents a serious abuse of federal prosecutorial discretion and as well a profound betrayal of its partners by KPMG,” Arkin said.

There was no immediate word on when the men would appear in court.

In a statement, KPMG chairman and Chief Executive Timothy Flynn noted that the men indicted in the scheme are no longer with the company.

“We regret the past tax practices that were the subject of the investigation,” he said. “KPMG is a better and stronger firm today, having learned much from this experience.”