NEW YORK (CNNMoney.com) -- Prosecutors in the KPMG tax fraud case suffered another blow as a 2004 document from the IRS showed that KPMG may not have been required to register certain questionable tax shelters with the agency, The New York Times reports.

The government is prosecuting 16 former KPMG executives, an outside lawyer and an investment advisor for allegedly attempting to defraud the IRS by marketing and creating fraudulent tax shelters and filing individual income tax returns that reflected those tax shelter losses.

But it has been an uphill battle for prosecutors in Judge Lewis Kaplan's courthouse.

Kaplan criticized the prosecution in recent months for encouraging KPMG to cut off legal fees to the former employees - opening the door for legal action against the company by the employees, who claim they were denied the ability to hire higher-priced legal representation.

Kaplan also scolded the prosecution for delaying its production of documents to the defense.

The most recent documents may throw a wrench in the government's case as defense attorneys are expected to cite them in motions seeking the dismissal of the indictment.

The Times reported that the IRS document was part of millions of pages the government released to defense attorneys. It was an e-mail message that highlighted a meeting between the IRS, Justice Department and Manhattan federal prosecutors, in which IRS officials told prosecutors that registration requirements for one of the tax shelters was unclear.

The e-mail went on to say that "formal advice on the registration of Blips might be favorable to KPMG," the Times reported.

Blips - or bond-linked investment premium structure - is a tax shelter in which investors take out bank loans and then shift them to partnerships to claim tax losses. Government officials say the bank loans were not legitimate.

Prosecutors told the Times that they have evidence beyond the IRS document that shows KPMG is guilty of tax fraud.

The KPMG trial is scheduled for January.

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