Interesting editorial in today’s Wall Street journal:  Taxes and Justice:

Prosecutors have been advertising their ballyhooed case against a pack of former KPMG partners as the largest criminal tax-shelter trial in history. They’d better do some scrambling for better evidence, however, or the case could end up becoming one of the biggest flops in Justice Department history.

Last week, a previously undisclosed memo from 2004 suggested that the IRS wasn’t sure that the tax shelters at issue in the trial of 18 defendants even needed to be registered with the IRS. This revelation is important because the failure to register the shelters is one of the Justice Department’s justifications for charging a conspiracy to defraud the IRS. Separately, we’ve obtained an internal KPMG memo to Richard Smith, one of the defendants in the case. In that 2003 memo, IRS Acting Chief Counsel Emily Parker is cited as assuring KPMG "that there has been no criminal activity" in KPMG’s marketing of the shelters. The defendants have claimed all along that they thought the shelters they were publicly marketing were entirely legal, and memos such as this one will certainly help the argument for "reasonable doubt."

As early as today, the defendants are expected to file for another delay of the trial on the basis of the 2004 IRS memo. Among other things, they will demand that prosecutors make available any other internal government documents that might tend to show that the tax shelters in question were not as fraudulent as the Justice Department claims.