(Bloomberg) ? An ex-HVB Group accountant pleaded guilty to defrauding the Internal Revenue Service in the first prosecution arising from an investigation of tax shelters and KPMG LLP, the US arm of the fourth-largest accounting firm.

Domenick DeGiorgio, 42, of Cold Spring Harbor, New York, admitted he helped promoters of a tax shelter known as BLIPS sell fraudulent transactions that saved wealthy individuals hundreds of millions of dollars in taxes.

DeGiorgio told a federal judge in New York that he used BLIPS, or Bond Linked Issue Premium Structure, to ?help wealthy clients reduce their tax liability.? He said the transactions enabled clients to ?keep for themselves money that they should have paid in taxes.? He said he received ?several hundred thousand dollars? in payments from the promoters of the scheme.

The charges grew out of a US Justice Department investigation of tax shelters marketed in the 1990s by accounting firms, law firms and banks to individual and corporate taxpayers.

KPMG wasn?t charged. It has been negotiating with prosecutors in a bid to avoid potentially fatal criminal charges of the firm over its sale of tax shelters.

If KPMG was convicted of a felony, it would be automatically barred from auditing public companies under rules of the US Securities and Exchange Commission, as Arthur Andersen LLP was after its 2002 obstruction of justice conviction related to audits of Enron Corp. That conviction was later overturned. KPMG?s collapse would put thousands of people out of work and reduce the number of major accounting firms to three.

Martin Roth, a spokesman for Munich-based HVB, declined to comment. KPMG spokesman Tom Fitzgerald declined to comment.

Tax shelters are sophisticated investments designed to minimise tax liabilities. Accounting firms and investment banks have traditionally sold them to corporations and wealthy individuals, often including a supporting opinion from a law firm.

In 2000 and 2001, ?various participants in the BLIPS tax shelter transactions filed various tax returns that falsely and fraudulent claimed over $1 billion in phoney tax losses generated by the BLIPS transactions,? according to the felony charge.

He pleaded guilty to wire fraud, tax evasion, and two counts of conspiracy. His lawyer, Jason Brown of Holland & Knight, wouldn?t say whether DeGiorgio was cooperating with prosecutors.

The accountant admitted he caused HVB to ?participate? in BLIPS transactions that he knew were fraudulent. Loans were an integral part of the transactions, according to court papers. DeGiorgio admitted that he knew the loans were not legitimate.

DeGiorgio in November 2003 testified in a US Senate hearing into abusive tax shelters and the role of KPMG in about 30 BLIPS accounts his bank was involved in.