Five Silicon Valley businessmen are suing Ernst & Young, accusing the firm of roping them into an illegitimate tax shelter around the time of the dot-com implosion.
According to the San Jose Business Journal, the men -- Thomas Fallon, Carl Redfield, Richard Timmins, Robert Puette and Alexandre Balkanski -- filed suit in state court on Jan. 30. The men are among 125 people who bought a tax shelter, known as a contingent deferred swap, from Ernst & Young between 1999 and 2002. The men, three of whom had ties to Cisco Systems Inc., all purchased the tax shelter as a way to reduce exposure to taxes on a collective $51 million.
The Internal Revenue Service disallowed the CDS shelter as a legitimate tax strategy in 2002, eventually auditing the five men and charging them with millions of dollars in back taxes and penalty fees.
Spokesman for Ernst & Young had no comment on the lawsuit. Court documents say that Ernst & Young charged its clients 1.25 percent of the loss written off, bringing in an estimated $27.8 million in CDS product fees during the three years that it was sold.
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