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Criminal Convictions Overturned in the Second Circuit

On November 29, 2012 the Second Circuit Court of Appeals overturned the convictions of two former Ernst & Young employees, Martin Nissenbaum and Richard Shapiro. Convictions of two other employees, Robert Coplan and Brian Vaughn, were affirmed in the same decision. All four criminal convictions at the district court level came after Ernst & Young had already agreed to pay $15 million to the IRS to settle an examination of tax shelters created by the accounting firm.

In January 2010, Nissenbaum, who was the national director of Ernst & Young's personal income tax and retirement planning practice, was convicted of tax evasion, conspiracy, and obstruction of justice by the United States District Court for the Southern District of New York. Shapiro, an attorney for the accounting firm during the years at issue, was also convicted of tax evasion and conspiracy. The two men were alleged to have been part of a scheme to defraud the IRS by creating and selling tax shelters to high-net-worth individuals with $20 million plus in income. However, the only evidence offered by the government to prove Nissenbaum's criminal intent was a three-line e-mail from March 2000, which the court stated was, "simply not enough."

The tax shelters in question were crafted and marketed by a special group at Ernst & Young called VIPER (Value Ideas Produce Extraordinary Results), later renamed SISG (Strategic Individual Solutions Group). Coplan, whose conviction was affirmed, was the head of the VIPER group. Vaughn, also convicted, was an accountant from the group. Both men are facing jail time, but are currently free on bail pending appeal.

Though the IRS continues to pursue investigations of various tax shelters and the people who design and sell them to taxpayers, the reversal of these convictions demonstrates just how difficult it is to prosecute these cases. But with millions of tax dollars on the line, there is no doubt that the IRS will continue to aggressively examine "creative" tax planning and the tax professionals that market these services to taxpayers. For tax professionals under investigation, a knowledgeable, technically sound defense team is invaluable.

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