Ernst And Young Accused Of Selling Dubious Tax Shelters

by Leroy Baker, Tax-News.com, London

13 April 2006

Ernst and Young has become the latest 'Big Four' accounting firm to come under the legal spotlight for its alleged role in selling dubious tax shelters.

According to reports, lawyers acting for a Florida couple, Rocco and Mary Abessinio, have sued E&Y in the US District Court in Manhattan. The complaint alleges that E&Y owes the couple more than $40 million as a result of additional tax that the couple had to pay for tax years 2001 and 2002, after the Internal Revenue Service challenged a tax sheltering arrangement sold to them by the firm.

At the centre of the complaint is a tax strategy known as a personal investment company, or PICO. The complaint accuses E&Y of marketing the tax strategy even though it had "no legitimate purpose other than as a vehicle for tax avoidance". E&Y reportedly earned $5.9 million in fees for marketing the PICO tax shelter.

According to Reuters, the 71-page complaint alleges that E&Y sold at least 90 PICO tax shelters. Lawyers are hoping that the case will become a class action.

In 2003, E&Y agreed to pay a $15 million fine to the IRS to settle a complaint over tax shelter compliance. Under this settlement, the company agreed to disband the group which sold the PICO tax arrangements.

In August 2005, KPMG, another big four accounting firm, agreed to pay $456 million in penalties to cover former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy.

Recommended