US district judge Lewis Kaplan will hear arguments early next month over whether KPMG should pay the legal fees of 16 former partners in the billion dollar tax shelters case.

The government has been criticised by Kaplan for putting pressure on the firm to cut off fees to pay the partner’s legal defence.

Lawyers for the former partners have called KPMG's demand to arbitrate their fee claims ‘unconscionable’ saying the government had put deliberate pressure on the firm to do so.

18 defendants, including 16 former KPMG partners are accused of cheating federal tax collectors out of $2.5bn (£1.3bn) by setting up shelters to allow hundreds of KPMG clients create fake tax losses.

In late July, KPMG filed a motion to dismiss the civil lawsuit, and called for arbitration of the fee claims.