KPMG, one of the big four accounting firms, is increasingly confident it can avoid a criminal trial in the US relating to its past sales of tax avoidance schemes to clients.

KPMG's US business is in talks with the Department of Justice about a "deferred prosecution agreement", under which it would be put on probation and criminal charges held in abeyance, according to people briefed about the case.

No decisions have been taken, but the people said a settlement between KPMG and the justice department could also involve a fine of as much as $500 million. KPMG is desperate to avoid an indictment because Andersen, once the world's biggest accounting firms, was destroyed after prosecutors pressed obstruction of justice charges against it in 2002. The firm declined to comment yesterday, but it has previously acknowledged the existence of an investigation by federal prosecutors into tax services sold between 1996 to 2002.

KPMG's US business said on June 16th that it took "full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred". Robert Bennett, a partner at Skadden, Arps, Slate, Meagher & Flom, which is representing KPMG, said: "We are fully co-operating with the Department of Justice." He declined to comment further.

The terms of any settlement between KPMG and the justice department would probably involve KPMG committing itself to internal reforms affecting its tax practice and to monitoring by an independent consultant.

KPMG made a plea to avoid indictment in a written submission to the justice department in June, when it highlighted how a criminal trial could have a negative impact on its partnerships outside the US, said one source briefed about the case. Andersen's international network of partnerships collapsed after the indictment of its US business.

A report in February by the Senate permanent sub-committee on investigations which scrutinised KPMG's tax avoidance schemes concluded that between 1998 and 2003 its US business developed products that were "at times, illegal, or potentially abusive". But the report accepted that since 2003 KPMG had dismantled its "abusive tax shelter practice".