Final answer:
The KPMG tax shelter scandal involved creating illegitimate transactions to evade taxes for wealthy clients. Complex schemes were designed to generate illegal tax benefits, resulting in significant legal and ethical repercussions for KPMG.
Step-by-step explanation:
In the KPMG tax shelter scandal, the transactions for wealthy clients were designed solely to evade taxes. KPMG, one of the largest accounting firms, was involved in creating complex financial arrangements that provided its clients with illegal tax benefits. These shelters were sophisticated strategies that abused tax laws to create tax benefits without corresponding economic losses. The transactions were not for legitimate investment purposes but were purely to create losses to offset income and ultimately reduce or eliminate tax liability illegally. The scandal highlighted the ethical and legal responsibilities of tax advisors and the importance of adhering to tax laws without engaging in fraud.
A tax shelter is a legal way for individuals or corporations to minimize their tax liability by taking advantage of certain loopholes or deductions in the tax code. In the case of KPMG, some of the tax shelters created for their clients were later deemed to be fraudulent or abusive, leading to significant penalties and legal consequences.