American Federal prosecutors have charged four partners at the accountancy group Ernst & Young with a scam that used the September 11 terrorist attacks to deprive the US government of hundreds of millions of tax dollars. If convicted the four, who pleaded not guilty, could face years in jail.

The partners allegedly helped wealthy clients cut their tax bills by creating phony losses on fictional investments which they could offset against their taxable income. They used “false and fraudulent factual scenarios” such as the World Trade Centre attacks, which sent the value of investments plunging across the globe, as a way to sidestep taxes, said Michael Garcia, the US attorney bringing the case.

The partners, whose alleged scams catered to clients with annual taxable income of $10 million (£5 million) or more, also converted part of some salaries into capital gains, which are taxed at a lower rate, Mr Garcia alleges.

The four defendants were charged as part of a government crackdown on tax evasion that has implicated KPMG and Deutsche Bank. E&Y was not charged as a firm, a serious move that could easily end its corporate life, although there is a possibility that E&Y, under investigation since 2004, could be indicted.

KPMG managed to avert an indictment for its alleged part in government tax evasion after agreeing a $456 million fine. But 16 former KPMG partners are awaiting trial in September on charges of cheating the US Treasury out of at least $2 billion, in what the US government has labelled America’s biggest-ever criminal tax case.

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