Quote of the Day (083005): On Accounting Firm KPMG’s “Abusive Tax Shelters” Settlement with the Feds

The Wall Street Journal, on the $400-plus million-dollar settlement accounting firm KPMG has agreed to with federal prosecutors over “abusive tax shelters”:

In the meantime, the finger-waggers in Congress might acknowledge their role in creating the 6,000-page, 2.8-million-word, tax code Frankenstein that facilitates the tax-avoidance industry. President Bush’s tax-reform commission is due to report at the end of September. Here’s hoping that a simple system with a low rate that encourages voluntary compliance will lead its list of recommendations.

The Journal notes that KPMG could have fought, gone to trial, won, and found itself in the same position as Arthur Andersen ended up in with Enron: a dead winner. Then we’d have three dominant international accounting firms instead of four, with all the negative competitive implications that situation would have caused.

Don’t get me wrong; I have plenty of bones to pick with fellow members and the large firms in the profession whose credential I carry. I just think that the Feds should be indicting individuals, including the managing partners and other firm executives. Instead, they are indicting (or threatening to indict) the firms themselves, which in Andersen’s case ended up killing the firm, and in KPMG’s case would likely have done the same, punishing everyone in the firm equally regardless of innocence or guilt. In the meantime, the actual perpetrators, if they are indeed guilty (which thanks to the lack of individual trials we’ll never know), are getting off the hook.

But, getting back to the quote, the more complex the code, the more opportunities there are for being “creative.” If Congress would gut the current Internal Revenue Code and replace it with a flat tax, or go with the most ambitious idea of totally replacing the income tax with something like the FAIR tax, the opportunities for “creativity” would mostly go away.