Ernst & Young US (E&Y) has admitted the wrongful conduct of some of its partners and employees in connection with the firm’s four tax shelter schemes sold to clients between 1999 and 2002.

E&Y has entered into a non-prosecution agreement (NPA) with the US government, in which it agreed to pay $123m accompanied a detailed Statement of Facts in which it admitted the wrongful conduct of certain partners and employees and agreed to certain permanent restrictions and controls on its tax practices.

These restrictions include a prohibition against planning, promoting or recommending any "listed transaction," or a transaction that the Internal Revenue Service (IRS) has determined to be a tax avoidance transaction.

In exchange, the US government has agreed not to criminally prosecute E&Y for its participation in the tax shelter scheme, though this applies to E&Y only and not any individuals.

The IRS’s case against E&Y’s is in relation to the use of four tax shelter schemes known as COBRA, CDS, CDS Add-On and PICO that were used to defer, reduce or eliminate tax liabilities believed to be worth over $2bn by more than 200 clients.

The schemes involved a small group within E&Y known as the Strategic Individual Solutions Group (SISG), whose main responsibilities included the supervision, co-ordination of marketing, the implementation and the defense of E&Y’s tax shelter.