The collapse of the company managing the Holiday Inn on Pearse Street, Dublin, has put in danger a £2 million (€2.54 million) tax allowance scheme belonging to eight partners from the accountancy firm KPMG.

It is understood the partners formed a consortium to buy the hotel for approximately half the value of the tax allowances associated with it by virtue of its tax designated status. The consortium then leased the hotel to a company associated with the former owners, with the rent being paid directly to the bank which financed the bulk of the consortium's deal.

The deal was done two and a half years ago and has another four and a half years to run. However, if a hotel is not being run on the premises, it could call the allowances into question.

One of the consortium, Mr Donall Gannon, was identified in the High Court last week during an application to have a receiver appointed to run the hotel. The other members of the consortium are not known. A spokesman for KPMG said he did not know the details of the arrangement and pointed out that it was a matter for the partners as individuals rather than a corporate KPMG matter. Mr Gannon was not available for comment.

It is understood that at the end of the seven-year period, in 2004, ownership of the hotel was due to transfer to Tara Virgin Resorts Inc, a company associated with the developers of the hotel. Sources said the structure of the transaction was usual for deals of this type.

A receiver, Mr Pearse Farrell, of Farrell Grant Sparks, was appointed to Cristeeg Catering Ltd - the operator of the hotel - on Friday of last week on behalf of Smurfit Finance Ltd, a subsidiary of Equity Bank. The directors of Cristeeg are Mr Kent Gross, a US citizen, and Mr Charles Daly, of Stillorgan, Co Dublin. Mr Robinson Callen, another US citizen, and along with Mr Gross one of the main developers of the hotel, resigned from Cristeeg in August 1998.

Equity Bank provided facilities to the KPMG consortium, who are understood to have paid off a loan which was outstanding following the construction of the hotel. Equity also provided finance to Cristeeg. In a statement, the bank said it had reluctantly sought the appointment of the receiver because the trading company had been in default of its loan facility for some time. It believed the hotel remained a viable proposition.

"As well as providing for the future and viable operation of Holiday Inn, the decision to appoint a receiver will ensure that the integrity of the tax incentive structure under which the hotel was founded will be preserved."

A creditors' meeting this week appointed liquidator Mr Tom Kavanagh to Cristeeg. The meeting heard that the company had debts of more than £1 million and estimated realisable assets of only £60,000.