Four current and former partners of the giant accounting firm Ernst & Young were charged Wednesday with fraud and other crimes relating to tax shelters that helped the wealthy escape taxes on incomes exceeding $10 million.
All four worked in a group set up by the company in 1998 to develop tax shelters, according to an indictment filed in U.S. District Court in Manhattan. The men allegedly defrauded the Internal Revenue Service from 1998 through 2004 by designing, marketing and selling fraudulent tax shelters.
U.S. Attorney Michael Garcia said in a statement that the indictment targets "tax professionals whose deceit costs this country untold millions in tax revenues."
Ernst & Young said in a statement that it has cooperated with the government from the start of the investigation and has voluntarily made changes to its tax practice.
The indictment said the four men knew that if the IRS discovered the tax shelters, it would aggressively challenge the claimed tax benefits.
To hide the tax fraud from the IRS, the partners created documents containing false and fraudulent descriptions of the clients' motivations for entering into the transactions, the indictment said.
Lawyers for two of the men said their clients were innocent and have been cooperating with authorities. Lawyers for the other two did not immediately return calls for comment.
Court papers said the men enticed clients to participate in the shelters by getting law firms to provide letters claiming that the tax shelter losses or deductions would "more likely than not" survive IRS challenge. The partners knew the opinions were based on fraudulent statements, but thought they would undermine the ability of the IRS to determine the clients' tax liabilities and to decide whether penalties should be imposed, according to the indictment.
The partners were seeking entry into the highly lucrative tax shelter market that was already being explored by other companies, the indictment said.
Prosecutors charged Robert Coplan, 54, a Plano, Texas, a lawyer who once was a branch chief in the IRS' Legislation and Regulations Division; Martin Nissenbaum, 51, of Brooklyn, a lawyer; Richard Shapiro, 58, of Rye Brook, N.Y., also a lawyer, and an accountant, Brian Vaughn, 39, of Calhoun, La.
Nissenbaum and Shapiro are current partners on administrative leave, while Coplan and Vaughn are former partners.
They were charged with conspiracy to defraud the IRS, tax evasion, making false statements and impeding the IRS.
John J. Tigue Jr., a lawyer for Shapiro, said in a statement that authorities are prosecuting an innocent man. He said Shapiro for five years has fully cooperated with investigators.
"He intends to vigorously defend himself against these baseless charges at trial," Tigue said.
Charles Clayman, a lawyer for Martin Nissenbaum, said in a statement that his client had cooperated over the last year with investigators.
He said his client expects to be acquitted.
Lawyers for Coplan and Vaughn did not immediately return telephone messages seeking comment.
Ernst & Young said in their statement that the men, none of whom were among the firm's management, were part of a small group within the firm that partook in the transactions. The group was disbanded years ago, the company said.