The crackdown on tax shelters continues with a Manhattan jury finding four members of the Ernst & Young accounting firm guilty of all criminal charges following a ten week trial. The four, Robert Coplan, Martin Nissenbaum, Richard Shapiro, and Brian Vaughn, worked in the SISG (Strategic Individual Solutions Group) set up by Ernst & Young in 1998. Three of the four are attorneys (Vaughn is a CPA). Interestingly, Coplan was at one time a Branch Chief in the IRS’s Legislation and Regulations Division.
Federal prosecutors alleged that the four defendants engaged in conspiracy, tax evasion and other charges related to the design, marketing and implementation of tax shelters sold by Ernst & Young. The tax shelters created by the four helped wealthy clients avoid paying between 1998 and 2006.
As part of their scheme, Coplan, Nissenbau, Shapiro and Vaughn helped clients manufacture losses within the tax shelters. The four then solicited opinion letters from law firms that claimed that the tax shelter losses or deductions would “more likely than not” survive IRS challenge, or “should” survive IRS challenge. The IRS claimed that the four defendants were aware that the transactions did not meet those standards.
Charges as between the defendants varied. In addition to tax evasion charges, there were claims that the defendants interfered with the investigation. Coplan was charged 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.” Coplan and Vaughn were both charged with making false statements to the IRS.
The defendants had pleaded not guilty. Charles Bolton, initially charged as a co-defendant with the four, had already pleaded guilty earlier in the year.
Each of the conspiracy, tax evasion, and false statements counts carries a maximum sentence of five years in prison and three years of supervised release. Each obstruction of justice count carries a maximum sentence of three years in prison and one year of supervised release. In addition, each count is subject to a maximum fine of the greatest of $250,000 or twice the gross gain or loss derived from the offense. Sentencing is scheduled for September 10, 2009.
David L. Smith, the alleged mastermind behind the scheme who was charged with conspiracy along with the remaining defendants, failed to appear before a federal judge last year. Investigators traced him to British Columbia, Canada, where he is believed to be living; his daughters are said to be attending private school there. He is allegedly working with Vancouver law firms to increase his vast wealth; he is charged with personally failing to report almost $20 million in income. Reportedly, the U.S. Marshal’s office was preparing a warrant for extradition but Smith has not yet been brought to New York. The US Department of Justice has not offered further comment.
You can read the indictment from 2007 here as a pdf.
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