More than 60 of the nation's 500 largest corporations got tax-shelter services between 1998 and 2003 from accounting firms hired to independently...
WASHINGTON — More than 60 of the nation’s 500 largest corporations got tax-shelter services between 1998 and 2003 from accounting firms hired to independently audit the companies’ financial statements, the Government Accountability Office (GAO) reported yesterday.
The relationship raises questions about possible conflicts of interest and should spur changes to ensure the independence of financial auditors, said Sen. Carl Levin, D-Mich.
“If we are going to restore public confidence in the financial statements of our public companies, auditors of those companies can’t be selling them abusive tax shelters that distort and misrepresent the companies’ tax liabilities and income,” said Levin, who requested the study.
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The IRS and congressional committees have been investigating the role accounting firms played in the proliferation of corporate tax shelters in the late 1990s and early 2000s.
The transactions the GAO studied cost the government $3.4 billion, the report said. Some had been deemed abusive shelters — complex transactions designed solely to lower taxes by exploiting loopholes or legal technicalities. All were among the 30 types of potentially questionable transactions that must be disclosed to the Internal Revenue Service.
The transactions deemed abusive cost the government $1.8 billion.
In 17 of the 500 corporations, at least one officer or director used the company’s auditor to obtain individual tax-shelter services. The study did not detect instances when an officer’s spouse or a family partnership used tax-shelter services.
The auditors cautioned that limitations in IRS data make the numbers a general indication of auditors’ involvement in tax shelters, not a precise accounting.
Financial scandals spurred changes that now require audit committees to give their approval before independent auditors can provide some tax services. The Public Company Accounting Oversight Board last year proposed stricter rules to limit auditors’ role in tax shelter services.