US May Level New Tax Shelter Charges Against E And Y Employees

by Glenn Shapiro, LawAndTax-News.com, New York

13 September 2007

US prosecutors are reportedly preparing to file a new indictment in connection with a case against former and current partners of the accounting firm Ernst and Young as part of an ongoing investigation into the sale of questionable tax shelters.

At a hearing in the Federal District Court in Manhattan on September 11, Deborah E. Landis, the federal prosecutor overseeing the case, reportedly announced that a superseding indictment could be filed by December 13, which could include additional charges against the four defendants already indicted, and possibly allegations against new individuals. The government has stressed that E&Y itself is not under investigation.

According to an indictment unsealed in the US District Court in Manhattan in May 2007, between 1998 and 2004 the defendants and their co-conspirators concocted and marketed tax shelter transactions to be used by wealthy individuals with taxable income generally in excess of $10 or $20 million, to eliminate or reduce the taxes they would have to pay the IRS.

The indictment charges four individuals in 8 separate counts, including conspiracy to defraud the IRS, tax evasion, making false statements to the IRS, and impeding and impairing the lawful functioning of the IRS. All four individuals allegedly worked in a group set up by E&Y in 1998 to develop tax shelters, which was first named VIPER (Value Ideas Produce Extraordinary Results), and later renamed SISG (Strategic Individual Solutions Group)

The four individuals named in the indictment include: Robert Coplan, a former E&Y tax partner who was the leader of the VIPER/SISG group, and the former National Director of E&Y’s Center for Wealth Planning; Martin Nissenbaum an E&Y partner who was a member of the VIPER/SISG group, and the National Director of E&Y's Personal Income Tax and Retirement Planning practice; Richard Shapiro, who was a member of the VIPER/SISG group, and an E&Y tax partner; and Brian Vaughn, a former member of the VIPER/SISG group, and a former E&Y tax partner. All have pleaded not guilty.

Prosecutors say that the conspirators also sought to deceive the IRS about the legality of those shelters, and the circumstances under which the shelters were marketed and sold to clients. These shelters were said to include: CDS (Contingent Deferred Swap); COBRA (Currency Options Bring Reward Alternatives); CDS Add-On; and PICO (Personal Investment Corporation).

The indictment further charged Coplan, Nissenbaum and Shapiro with implementing a tax shelter in 2000 to evade $3.7 million in their own taxes, and with arranging for eight of their E&Y partners to participate in the tax shelter transaction.

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