Yesterday’s hearing in the complex KPMG tax shelter case brought about some interesting discussions:

• Reuters:
  

  A federal judge accused prosecutors Thursday of overreaching in their attempt to show that former KPMG executives sold questionable tax shelters to wealthy clients.

  Lawyers involved in the case expect U.S. District Judge Lewis Kaplan to reject defendants’ calls to dismiss the case.

  The New York judge, however, faulted what he called the government’s “shameful” activity that led the accounting firm not to pay defendants’ legal bills, contrary to past practice. He also suggested that prosecutors drop some lesser counts.

• Lynnley Browning:
  

  A federal judge raised questions yesterday about the prosecution of 16 former KPMG employees over aggressive tax shelters, criticizing prosecutors for what he called murky definitions of fraud and evasion.

  The judge, Lewis A. Kaplan of Federal District Court in Manhattan, said he was confused by what prosecutors said was a conspiracy by the defendants to make and sell aggressive shelters that allowed hundreds of wealthy investors to evade $2.5 billion in taxes from 1996 to 2002.

  “Frankly, I’m very bothered by it,” the judge said, saying the document “puts the government’s thumb on the scales” and raises questions about the Sixth Amendment constitutional right to legal representation.

  No court has ruled the shelters illegal, but the I.R.S. has never considered them valid for deductions.

  Nonetheless, Steven Bauer, a lawyer who represents John Larson, a former KPMG partner who is one of the 18 defendants, said prosecutors had withheld important information detailing, among other things, debate inside the I.R.S. over whether the shelters were legitimate.

  Judge Kaplan ordered the prosecution to turn over any withheld information.