Ernst & Young partners charged in tax fraud case

By Emily Chasan

NEW YORK (Reuters) - Federal prosecutors on Wednesday accused four current or former partners of accounting firm Ernst & Young ERNY.UL in a tax fraud conspiracy case arising out of the sale of tax shelters.

In an indictment filed in U.S. district court in Manhattan, prosecutors allege the defendants at the "Big Four" accounting firm created and marketed tax shelters from 1998 through 2004 based on false and fraudulent scenarios to allow wealthy individuals to reduce the federal taxes they would have to pay.

The Ernst & Young current or former partners named in the case are Robert Coplan, Martin Nissenbaum, Richard Shapiro and Brian Vaughn.

A lawyer for Shapiro, John Tigue, said he has cooperated with the government for the last five years.

"He intends to vigorously defend himself," Tigue said in a statement.

Brian Linder, a lawyer for Nissenbaum, said in a statement that his client has entered a plea of "not guilty."

"We have provided them (The U.S. attorney's office) over the past year with evidence that Mr. Nissenbaum did not engage in any unlawful activity," Linder said.

Lawyers for Coplan and Vaughn could not be immediately reached for comment.

Prosecutors allege that the four defendants schemed to defraud the IRS by deceiving the IRS about tax shelters that were marketed and sold to clients with taxable income, generally higher than $10 or $20 million.

The indictment also charges that Coplan, Nissenbaum and Shapiro implemented tax shelters in 2000 to evade their own taxes, and arranged for eight other Ernst & Young partners to participate in that transaction, evading $3.7 million in taxes.

Ernst & Young has made changes to its tax practice since the transactions in question, the accounting firm said.

"The individuals who were indicted are two former partners and two partners who have been on administrative leave," Ernst & Young spokesman Charles Perkins said in a statement. "They were part of a small group within the firm, disbanded years ago,.... Ernst & Young has cooperated with the government from the beginning of its investigation, and we will continue to do so."

Rival "Big Four" accounting firm KPMG KPMG.UL has also been under scrutiny for tax shelters. In 2005, KPMG agreed to pay $456 million, accept an outside monitor and admit to wrongdoing to resolve a federal investigation into questionable tax shelters it sold to wealthy individuals.

Sixteen of the KPMG's former employees are due to face trial over the shelters in September.

(Additional reporting by Martha Graybow)