The company and the Texas State Board of Public Accountancy announced Thursday they reached an agreement under which KPMG's license was suspended for five years but the sanction was blocked while the firm is on probation.

KPMG was also fined the maximum $1,000 for each of 96 violations of the state accountancy law, the board said.

The case stems from admissions the firm made to federal officials who investigated tax shelters that helped rich clients avoid billions in taxes.

KPMG reached a deferred-prosecution agreement with the Justice Department in August 2005, and a federal judge in New York dismissed a criminal charge this month after prosecutors said the firm had cooperated with the government's investigation.

The accounting firm has blamed the preparation of fraudulent tax returns and statements to support the tax shelters on former executives. The case against those executives is continuing.

William Treacy, executive director of the state accountancy board, said KPMG's license to practice in Texas would be suspended if it is convicted of failing to comply with terms of its deal with the Justice Department.

KPMG, which has more than 400 certified public accountants in Texas, said its activities would not be affected by probation.

"We are pleased that the Texas matter is now resolved and that it does not restrict in any way our ability to serve our clients in the state," said spokesman George Ledwith.

The case was settled through a consent order without holding a formal hearing. Ledwith said Texas is the first state to reach a settlement with the firm. Other states were considering action before KPMG settled with the Justice Department in 2005.

The accountancy board is the licensing and enforcement agency for certified public accountants and accounting firms in Texas. The agency's director said it was unusual for the board to bring a case against such a large accounting firm.

The last one, he said, involved Arthur Andersen LLP, which was convicted of obstruction of justice for shredding Enron documents. The U.S. Supreme Court overturned the conviction, but not before Andersen was devastated.

"Fortunately for the public, we don't have these very often - maybe every three or four years," Treacy said.