The convictions of two tax attorneys for conspiring to peddle illegal tax shelters at Ernst & Young were vacated yesterday by a federal appeals court.
The U.S. Court of Appeals for the Second Circuit threw out the convictions on all counts of attorneys Martin Nissenbaum and Richard Shapiro in a conspiracy that included five different tax shelters from 1999 to 2001.
The circuit also let stand the convictions of a third tax attorney in the Ernst & Young tax shelter case, Robert Coplan.
The panel was divided, 2-1, on vacating most of the convictions, with Judges Jose Cabranes (See Profile) and Joseph McLaughlin (See Profile) in the majority holding there was insufficient evidence to find that Shapiro and Nissenbaum knew about the conspiracy and participated in it.
The circuit, in a 75-page opinion authored by Cabranes, also rejected the appeal of accountant Brian Vaughn, formerly of Ernst & Young, and refused to set aside the guilty plea to a single conspiracy charge by Charles Bolton, an investment advisor and asset-management company owner and operator.
The decision shakes up the result of a 10-week trial before Southern District Judge Sidney Stein (See Profile) that ended with a judgment of conviction in May 2009 for all four defendants on charges of conspiracy to defraud the government and two counts of tax evasion. Nissenbaum and Coplan were also convicted of obstruction of the Internal Revenue Service and Vaughn and Coplan of false statements to the IRS.
The government was able to persuade the jury that the four trial defendants were engaged in a scheme to provide cover from the IRS for high net-worth clients who were seeking to shelter at least $20 million from taxes.
Coplan, Nissenbaum and Shapiro were also accused of personally investing in a fifth tax shelter that, like the others, allegedly lacked "economic substance."
At trial, the government tried to show the defendants hid the real nature of the tax shelters by creating "cover stories" as to their purpose, though they touted and supported the shelters by providing legal opinion letters that could be shown in defense to the IRS.