NY Times Accuses Ernst & Young Of Encouraging Tax Evasion

by Leroy Baker, Tax-News.com, New York

24 June 2002

The New York Times on Friday accused international accounting firm Ernst & Young of encouraging wealthy Americans to evade taxes.

The newspaper was provided with a summary of the methods allegedly used to conceal transactions from the IRS in the event of an audit by an unnamed financial adviser, who told the NY Times that he was violating the confidentiality contract signed with the accounting firm because he was 'outraged' by the 'morally indefensible' methods being used to minimise the taxes of HNWI.

According to NY Times Columnist, David Cay Johnston the four revealed techniques suggested by Ernst & Young were designed to achieve sharply reduced tax levels on the proceeds from the sale of a business, on investment profits, on stock option profits, and on salary payments.

However, the accounting firm has hit back angrily at the New York Times report, arguing that the practices it advises upon are legal and proper, and that the reasoning behind the confidentiality agreement is to prevent financial advisers from marketing investment minimization techniques as their own.

In a statement released following the publication of the NY Times article, E&Y stated that: 'Under no circumstance would Ernst & Young authorize advising a client to conceal income or evade taxes,' adding that: 'We strongly resent the implication that we would do so.'

Speaking to the newspaper last week, Kenneth Kerrigan, spokesman for Ernst & Young said that at least one of the techniques has been disclosed to the government and has not been challenged, and that none of the techniques have been classified by the authorities as 'improper tax shelters'.

However, senior Bush Administration tax policy official, Pamela F. Olson said that wealthy Americans and their advisers cannot necessarily take comfort in this fact, explaining that the Treasury has been overwhelmed dealing with tax shelters disclosed during a brief amnesty this year, and has not yet gotten around to reviewing the majority of the practices recommended by Ernst & Young and other 'Big Four' accounting firms.

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