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NEW E&Y TAX SHELTER CHARGES?

September 12, 2007

Fresh from winning a guilty plea in their tax shelter case involving former KPMG partners, the Justice Department is revving up a case involving another national accounting firm, reports the New York Times:

Federal prosecutors are planning a fresh indictment in a case that involves tax shelters sold by the accounting firm Ernst & Young, according to defense lawyers in the case.

Four current and former partners of Ernst & Young were indicted last May in connection with their tax shelter work from 1998 through 2004. The firm itself, which has not been charged, has been under investigation since 2004 by federal prosecutors in Manhattan, who have been looking into its creation and sale of aggressive shelters.

Nobody expects charges against E&Y, but that can't be much comfort to those involved in tax shelter frenzy that ran from the late 1990s until around 2003. The Times provides some background:

The case against the four Ernst & Young defendants focuses on four aggressive shelters known as Cobra, Pico, CDS and CDS Add-on. Several firms other than Ernst & Young, including Deutsche Bank and the law firm of Jenkens & Gilchrist, which is now defunct, also worked on Cobra. Deutsche Bank, which is part of the broad criminal investigation, helped make and sell Cobra to more than 1,100 wealthy investors in 1999 and 2000, according to court papers in related cases.

While the tax shelter party was incredibly lucrative for the big firms at the time, the hangover is nasty.

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