As KPMG attempts to finalize a deferred prosectution agreement with federal prosecutors that would avoid an Arthur Andersen-type indictment and probable meltdown, now they have another front on the criminal battlefield to be worried about:

Mississippi likely will file criminal charges against accounting giant KPMG because it created a tax strategy the state says illegally let WorldCom, now called MCI Inc. shield billions of dollars from taxes, sources close to the case said on Friday.
Although a few other states have also weighed this strategy, Mississippi Attorney General Jim Hood is the most determined and his state would be the first to take this step, said the sources, who requested anonymity.
Under Mississippi law, “any person who willfully attempts in any manner to evade or defeat any tax . . . or assists in the evading of that tax or payment thereof” can be found guilty of a felony, one of the sources said. Penalties can be up to five years in prison, while fines can be as much as $500,000.
Analysts say Congress and corporate America would not want another of the nation’s biggest accounting firms put out of business because the industry would be overly concentrated.
Mississippi might not share the federal government’s concern that there could be too few auditors if KPMG collapsed, experts said, so KPMG might have less leverage in any talks with the state.

Hat tip to Ellen Podgor for the link to the Mississippi action.