E&Y Faces Criminal Probe on Shelters

The investigation is the latest blow to the firm, which was recently banned from accepting new clients for six months.
Stephen TaubMay 25, 2004

Ernst & Young LLP reportedly confirmed that it is a target of a federal criminal investigation of its promotion of tax shelters for clients. A spokesman told Reuters the Big Four accounting firm is cooperating with the probe, but would not provide additional details.

The investigation was launched last week by the U.S. Attorney’s office for the Southern District of New York, which is also investigating KPMG for a similar matter, The Wall Street Journal reported yesterday.

About 10 months ago, E&Y reached a settlement with the Internal Revenue Service, according to Reuters, which reported that the firm was fined $15 million for failing to comply with registration requirements on tax shelters. PricewaterhouseCoopers also earlier reached a settlement with the IRS.

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Criminal tax investigations tend to be lengthy and often don’t result in criminal charge, according to the Journal. The possible felony charges against the firm include tax evasion, aiding in the preparation of false tax returns, conspiracy, mail fraud, and obstructing the IRS, the paper reported.

This is the latest blow to E&Y, which last month was ordered by the Securities and Exchange Commission not to accept new clients for six months.