U.S. Tax Shelter Probe Targets Ernst & Young

Federal prosecutors are conducting a criminal probe of Ernst & Young’s promotion of tax shelters for clients, the accounting firm said Monday.

A spokesman said Ernst & Young was cooperating with the investigation, but declined to give further details. News of the probe first appeared in the Wall Street Journal.

The investigation was launched last week by the U.S. attorney’s office for the Southern District of New York, which is also conducting a similar probe at accounting firm KPMG. A spokeswoman at the U.S. attorney’s office declined to comment.

Ernst & Young last year was fined $15 million in a settlement with the Internal Revenue Service over the firm’s failure to comply with registration requirements on tax shelters.

The IRS has been investigating the big accounting firms for using potentially illegal ways to help U.S. corporations save billions of dollars in taxes.

Accounting firm PriceWaterhouseCoopers also has reached a settlement with the IRS.

The audit firms have scrapped offering the tax shelter programs that came under fire, and both KPMG and Ernst & Young have restructured their tax practices since then.