Former and current employees of one of the Big Four accounting firms, Ernst & Young, were found guilty in federal court on May 7 for selling illegal tax shelters to their clients.
Prosecutors issued indictments against E&Y employees in 2007. The group called themselves "VIPER." VIPER included accounting executives, a former IRS lawyer, and a financial consultant. The former IRS lawyer, Peter Cinquegrani, pled guilty in September 2008. Prosecutors said Cinquegrani drafted legal opinion letters vouching for the legality of the tax shelter. The VIPER group used clients' letters and other documents to obscure the fact that the sole purpose of the tax shelter was to create tax losses.
The shelter was referred to as a Contingent Deferred Swap, or CDS. The CDS shelter targeted wealthy investors with more than $10 million in taxable income. VIPER sold the shelters from 1998 through 2004. Each count of conspiracy, tax evasion, and false statements carries a minimum sentence of five years in prison.
"Tax shelter" usually means a product or strategy that brings together different elements of the tax code for a useful purpose, and many are acceptable. The IRS refers to improper tax shelters as "abusive." Abusive tax shelters are those in which a significant purpose is the avoidance or evasion of federal, state, or local tax in a manner not intended by the law.
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