Lawfuel – The Law Newswire – MICHAEL J. GARCIA, United States Attorney…

Lawfuel – The Law Newswire – MICHAEL J. GARCIA, United States Attorney for the Southern District of New York, and KEVIN BROWN, the Acting
Commissioner of the Internal Revenue Service (“IRS”), announced
today the unsealing of an Indictment charging four current and
former partners of Big-Four accounting firm Ernst & Young (“E&Y”)
with tax fraud conspiracy and related crimes arising out of tax
shelters promoted by E&Y. According to the Indictment, the
defendants and their co-conspirators concocted and marketed tax
shelter transactions based on false and fraudulent factual
scenarios 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 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) (“VIPER/SISG”).

The four individuals named in the Indictment are:
• ROBERT COPLAN, 54, of Plano, Texas, 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. Mr. COPLAN, a lawyer, was at one time a
Branch Chief in the IRS’ Legislation and Regulations
Division.
• MARTIN NISSENBAUM, 51, of Brooklyn, New York, 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. Mr. NISSENBAUM is also a
lawyer.
• RICHARD SHAPIRO, 58, of Rye Brook, New York, who was a
member of the VIPER/SISG group, and an E&Y tax partner.
Mr. SHAPIRO is also a lawyer.
• BRIAN VAUGHN, 39, of Calhoun, Louisiana, a former
member of the VIPER/SISG group, and a former E&Y tax
partner, who is a CPA.

As alleged in the Indictment:
From 1998 through 2004, the four defendants and others
participated in a scheme to defraud the IRS by designing,
marketing, implementing and defending fraudulent tax shelters.
The conspirators sought to deceive the IRS about the bona fides
of those shelters and the circumstances under which the shelters
were marketed and sold to clients.
The defendants and their co-conspirators understood
that if the IRS were to detect their clients’ use of these tax
shelters, and learn the true facts and circumstances surrounding
the design, marketing and implementation of the shelters, the IRS
would aggressively challenge the claimed tax benefits. In that
event, the IRS would seek to collect the unpaid taxes plus
interest, and might also seek to impose substantial penalties
upon the clients. Accordingly, the conspirators undertook to
prevent the IRS from: a) detecting their clients’ use of these
shelters; b) understanding how the transactions operated to
produce the tax results reported by the clients; c) learning that
the shelters were marketed as cookie-cutter products that would
eliminate, reduce or defer large tax liabilities; d) learning
that the clients were not seeking profit-making investment
opportunities, but were instead seeking huge tax benefits; and e)
learning that, from the outset, all the clients intended to
complete a pre-planned series of steps that had been designed by
the conspirators to lead to the specific tax benefits sought by
the clients.

In order to maximize the appearance that the tax
shelters were investments undertaken to generate profits, and to
minimize the likelihood that the IRS would learn the transactions
were actually designed to create tax losses and deductions, the
defendants and their co-conspirators created and assisted in creating transactional documents and other materials containing
false and fraudulent descriptions of the clients’ motivations for
entering into the transactions, and their motivations for taking
the various steps that would yield the tax benefits. The
conspirators also carefully protected internal documents and
promotional materials that set forth the tax benefits and pricing
schedules of the various shelters against disclosure to the IRS.
In order to encourage clients to participate in the
shelters, and to shield the clients from substantial penalties
that could be imposed if the IRS disallowed the claimed tax
benefits, the defendants worked with law firms to provide E&Y’s
clients with opinion letters that claimed the tax shelter losses
or deductions would “more likely than not” survive IRS challenge,
or “should” survive IRS challenge. However, the defendants knew
those opinions were based upon false and fraudulent statements,
and omitted material facts. As described in the conspiracy
charge, by helping their clients obtain false and fraudulent
opinion letters, with the understanding and intent that those
opinion letters would be presented to the IRS if and when the
clients were audited, the defendants sought to undermine the
ability of the IRS to ascertain the clients’ tax liabilities and
determine whether penalties should be imposed.

The Indictment alleges that the defendants and their
co-conspirators undertook these actions so that E&Y could
participate in the highly lucrative tax shelter market in which
other accounting firms were already participating; so that E&Y
could prevent its high-net-worth clients from taking their
business (including, potentially, the highly prized audit
business associated with some of these individuals) to its
competitors; so that E&Y’s Personal Financial Counseling practice
– a business unit that was not a substantial contributor to the
firm’s revenues – could grow and prosper within the firm; and so
the individual defendants could enhance their own opportunities
for professional recognition, advancement, job security, and
remuneration.

Among the alleged fraudulent tax shelter transactions
designed, marketed, and implemented by the defendants and their
co-conspirators were CDS (“Contingent Deferred Swap”); COBRA
(“Currency Options Bring Reward Alternatives”); CDS Add-On; and
PICO (“Personal Investment Corporation”).
The Indictment also charges defendant ROBERT COPLAN
with corruptly endeavoring to impede the due administration of
the Internal Revenue laws by instructing E&Y individuals to
destroy documents related to the COBRA transaction when he knew
of a pending IRS audit of the transaction.

The Indictment charges defendants ROBERT COPLAN and
BRIAN VAUGHN with making false statements to the IRS in
connection with an examination by the IRS of whether E&Y had
complied with various legal requirements applicable to the firm’s
tax shelter activities.

The Indictment further charges defendants ROBERT
COPLAN, MARTIN NISSENBAUM and RICHARD SHAPIRO with implementing a
tax shelter in 2000 to evade their own taxes, and with arranging
for eight of their E&Y partners to participate in the tax shelter
transaction with them. Use of that tax shelter enabled the group
of eleven E&Y partners to eliminate a total of approximately $3.7
million in taxes. The Indictment also charges defendant
NISSENBAUM with corruptly obstructing the due administration of
the Internal Revenue laws by providing false and misleading
statements to the IRS on behalf of himself and ten other E&Y
partners in connection with an audit of the 2000 tax returns of
all eleven participants in the transaction.

Mr. GARCIA thanked the Internal Revenue Service,
Criminal Investigation for their work on this case.
Mr. GARCIA added that the investigation is continuing.
U.S. Attorney GARCIA stated: “This prosecution further
demonstrates our commitment to hold accountable tax professionals
whose deceit costs this country untold millions in tax revenues.
The conduct charged in this Indictment far exceeds the bounds of
legitimate tax planning and reflects flagrant disregard of the
law.”

Acting IRS Commissioner BROWN stated: “According to
today’s indictments, these individuals conspired to defraud the
government through a series of fraudulent tax shelter products.
They sold these products to high-income clients seeking to
diminish or eliminate their tax liabilities. The IRS and the
Department of Justice will continue efforts to combat illegal tax
shelter activity and ensure the integrity of our tax system.”
Assistant United States Attorneys DEBORAH E. LANDIS and
JAIKUMAR RAMASWAMY are in charge of the prosecution.
The charges contained in the Indictment are merely
accusations, and the defendants are presumed innocent unless and
until proven guilty.
07-130 ###

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