By LARRY NEUMEISTER
Associated Press

NEW YORK - Three former executives of accounting giant KPMG and a lawyer used lies and deception to cheat the federal government out of hundreds of millions of dollars in taxes owed by some of the nation's richest people, a prosecutor said Wednesday.

But a defense lawyer said the men were doing their jobs legally by creating sophisticated tax shelters to help people generate tax losses to offset their profits.

Three years after charges were first brought, Assistant U.S. Attorney John Hillebrecht promised jurors that a Manhattan trial expected to last four months or more would not be a burden, despite the cumbersome and complex subject.

"Relax - this is a simple case," he said in his opening statement.

He said the case was about lies, not tax-law arcana. The defendants built an elaborate, fraudulent paper trail on behalf of hundreds of individuals looking for ways to hide at least $20 million in profits each, Hillebrecht said. The Department of Justice has said the scheme allowed KPMG's clients to avoid paying $2.5 billion in taxes.

"You can't lie to get out of paying your taxes," Hillebrecht said.

He said jurors would not need to understand tax codes or the details of accounting tricks to know that the defendants purposely set out to lie about taxes to help rich people avoid paying them.

Hillebrecht said the defendants were motivated by greed, knowing they could make millions of dollars in fees by erasing tens of millions of dollars in taxes their wealthy clients owed between 1997 and 2000.

"Their greed overcame their fear of being caught," he said.

Charged with conspiring to obstruct the Internal Revenue Service, evading taxes and filing false tax returns are a lawyer, Raymond Ruble, and former KPMG executives David Greenberg, John Larson and Robert Pfaff.

Defense lawyer Thomas Hagemann told the jury the defendants were four professionals among hundreds of experts who worked in a legitimate and honest business that helped people save money on taxes.

The federal tax code is so complicated that it is spelled out in small print in six thick books that nobody fully understands, Hagemann maintained. He said the government designed a tax code that encouraged experts to design tax-saving instruments they believed had a reasonable expectation of being found to be legal and fair.

He said some of the country's finest law firms, largest banks and biggest accounting firms approved of the concept of using tax shelters to generate capital losses. He noted that the tax shelters were marketed at a time when the stock market was tripling in value and some people were making as much money as corporations once did.

Some 19 defendants were initially charged in the case. Charges against most of them were dismissed after U.S. District Judge Hon. Lewis Kaplan ruled that the government had unfairly blocked the company from paying legal fees for employees.

The government once touted the case as the biggest tax-fraud prosecution in U.S. history, but there was no mention of that during opening statements.

KPMG LLP has signed a deal admitting its role in the tax-shelter scheme. The firm avoided criminal prosecution by cooperating with authorities but was fined $456 million, including $128 million in forfeited fees from sales of the shelters.