A Florida couple has sued their former accountants for selling them tax shelters that were rejected by the Internal Revenue Service (IRS).
The suit contends that Ernst & Young defrauded Rocco and Mary Abessinio and other wealthy taxpayers, out of $5.9 million in fees for the bogus tax shelters, Reuters reported. The suit was filed Monday in District Court in Manhattan and lawyers hope it will become a class action.
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The lawsuit states that Ernst & Young sold a tax strategy that involved forming a “personal investment company,” or PICO, to avoid taxes, having “no legitimate purpose.” The couple alleges that they paid more than $40 million in increased tax liabilities for 2001 and 2002 as a result.
Ernst & Young spokesman Charles Perkins declined comment.
The IRS reached a settlement with the firm in 2003 over its tax shelter compliance. The firm agreed to a $15 million fine, and to put a “Quality and Integrity Program” in place. The lawsuit said the agreement also called for Ernst & Young to disband the group that sold the PICO products.
"Defendants were aware or recklessly ignored that PICO was not a legitimate tax strategy, in part due to their familiarity with or participation in the marketing and/or implementation of other discredited tax shelters,” court papers said.
IRS advises taxpayers on how to recognize an abusive tax shelter. An allowable tax shelter produces income and includes a risk of loss which roughly matches the expected tax benefit. “An abusive shelter generally offers inflated tax savings which are disproportionately greater than your actual investment placed at risk," according to the IRS.