Partners at giant firm accused of tax fraud

NEW YORK — A former top Internal Revenue Service lawyer and three other Ernst & Young partners reduced taxes for Americans making $10 million or more with a fraud that even used the Sept. 11 terrorist attacks to disguise their lies, according to an indictment charging the men.

The four current and former partners of the giant accounting firm were arrested Wednesday and charged with fraud and other crimes relating to tax shelters that were devised beginning in early 1998, the indictment unsealed in U.S. District Court in Manhattan said.

The men defrauded the IRS from 1998 to 2004 by designing, marketing and selling fraudulent tax shelters that made it appear as if customers were making investments when they actually were moving money around solely to dodge taxes, the indictment said.

The indictment portrayed Robert Coplan as central to the plan. Coplan, a Plano, Texas, lawyer, once was a branch chief in the IRS’ Legislation and Regulations Division. He worked for Ernst & Young in its Washington, D.C., office, though he has since left the firm.

In one 2001 letter, Coplan tells a salesperson not to advise clients in writing about strategies for tax shelters because the ultimate goal is to “make our strategies appear to be investment techniques that have advantageous tax consequences,” the indictment said.

The court document said Coplan drafted another letter in 2001 to be signed by clients who terminated trading partnerships after obtaining their tax benefits.

In that letter, the indictment said, “clients falsely attributed their decision to discontinue their trading activities to the Sept. 11, 2001, terrorist attacks and to `possible economic repercussions resulting from such attacks.”’

Coplan, 54, said the letter could be used “as a means of establishing a logical reason for winding down the trading account in the partnership,” the indictment said.

Coplan was released on $1 million bail after a brief appearance in court Wednesday. His lawyer declined to comment outside court.

U.S. Attorney Michael Garcia said in a statement that the indictment targets “tax professionals whose deceit costs this country untold millions in tax revenues.”

Ernst & Young said in a statement that it has cooperated with the government from the start of the investigation and has voluntarily made changes to its tax practice.

The indictment said the four men knew that if the IRS discovered the tax shelters it would aggressively challenge the claimed tax benefits.

To hide the tax fraud from the IRS, the partners created documents containing false and fraudulent descriptions of the clients’ motivations for entering into the transactions, the indictment said.

Court papers said the men enticed clients to participate in the shelters by getting law firms to provide letters claiming that the tax shelter losses or deductions would “more likely than not” survive IRS challenge.

The letters were crucial because the IRS could impose substantial penalties ranging from 20 percent to 40 percent of the underpayment unless the claimed tax benefit was supported by an independent opinion, the indictment said.

The partners were seeking entry into the highly lucrative tax shelter market that was already being explored by other companies, the indictment said.

Besides Coplan, those charged were Martin Nissenbaum, 51, of Brooklyn, a lawyer; Richard Shapiro, 58, of Rye Brook, N.Y., also a lawyer; and Brian Vaughn, 39, of Calhoun, La., an accountant. Nissenbaum and Shapiro were each freed on $1 million bail, while Vaughn was freed on $300,000 bail.

All the defendants pleaded not guilty.

Nissenbaum and Shapiro are current partners on administrative leave. Vaughn is a former partner.

They were charged with crimes including conspiracy to defraud the IRS, tax evasion, making false statements and impeding the IRS.

A lawyer for Shapiro, John J. Tigue Jr., said in a statement that authorities are prosecuting an innocent man.

He said Shapiro for five years has fully cooperated with investigators.

“He intends to vigorously defend himself against these baseless charges at trial,” Tigue said.