What a fine thing for the Manhattan U.S. Attorney to announce on a Friday afternoon that it had reached at settlement with Ernst & Young over its tax sheltering activities:
Ernst & Young LLP will pay $123 million to settle a U.S. tax-fraud probe as part of a non- prosecution agreement, according to a statement from the Manhattan U.S. Attorney’s Office. The accounting firm “admitted wrongful conduct” by its partners and employees in connection with four tax shelters, from 1999 to 2004, according to today’s statement. About 200 Ernst & Young clients used the shelters to try to avoid more than $2 billion in taxes, it said. In addition to the money and the admissions, Ernst & Young agreed to a series of permanent restrictions on its tax practice and will continue to cooperate with the government’s tax-shelter investigation. The firm’s cooperation began in 2003, according to the statement.
A small group within E&Y known as the Strategic Individual Solutions Group (“SISG”) was primarily responsible for supervising and coordinating the marketing, implementation and defense of E&Y’s tax shelter products. Certain SISG tax shelter products were designed to appear to the IRS to be substantive investments that had favorable tax consequences when, in reality, the products were actually designed and marketed to clients as a series of preplanned steps that would defer, reduce or eliminate their tax liabilities. The typical client participating in these shelters was primarily, if not exclusively, motivated to achieve a desired tax savings.In order to deceive the IRS as to the true nature of the tax strategies, and to bolster arguments that the transactions had economic substance, some SISG personnel agreed upon and directed other E&Y employees to participate in a concerted effort not to create, disseminate, or publicize documents reflecting the tax motivation behind the strategies, or the preplanned sequence of steps necessary to effect the strategies.
MANHATTAN U.S. ATTORNEY ANNOUNCES AGREEMENT WITH ERNST & YOUNG LLP TO PAY $123 MILLION TO RESOLVE FEDERAL TAX SHELTER FRAUD INVESTIGATION [DOJ]
Non-prosecution agreement [DOJ]
Ernst & Young to Pay $123 Million to End Tax-Fraud Probe [Bloomberg]
Ernst & Young to pay $123 million to resolve U.S. tax shelter probe [Reuters]