No tax refunds on fake profits, senator says

Associated Press

Washington- The Senate Finance Committee chairman said yesterday he is asking federal prosecutors to move against companies caught up in accounting scandals that are seeking tax refunds because they overpaid based on the artificially inflated profits they reported.

WorldCom, Enron, Qwest Communications and HealthSouth are either pursuing or considering filing for federal tax refunds or credits for payments made on billions of dollars falsely claimed as earnings. Sen. Charles Grassley, an Iowa Republican, the finance panel chief, said he will “encourage [the Justice Department] to take aggressive action against the companies and individuals who were in on the con.”

The action could include levying criminal fines, which Grassley said may have to be increased to cover the full amounts of tax refunds claimed by companies.

The four companies – all under investigation by federal authorities for accounting violations – were among the biggest corporate scandals that came to light over the past year and a half.

“These bad actors made the IRS an unwitting accomplice to their fraud,” Grassley said in a statement.

Telecommunications giant WorldCom, which is seeking to emerge from bankruptcy protection and officially change its name to MCI in the fall, already has collected $300 million in tax refunds from the Internal Revenue Service. Mississippi-based WorldCom filed the largest corporate bankruptcy in U.S. history last summer after disclosing what appears to be the biggest accounting fraud ever, nearly $11 billion.

The refunds were first reported in yesterday’s Wall Street Journal.

A spokesman for WorldCom declined to comment on the tax refund issue. IRS spokeswoman Nancy Mathis said the agency would have no comment.

Another bankrupt company, Enron, which paid only $63 million in taxes between 1996 and 2001, is seeking tax credits, while Qwest is believed likely to seek a refund.

“We are not commenting other than to confirm we are in discussions with the IRS,” Enron spokeswoman Karen Denne said.


© 2003 The Plain Dealer. Used with permission.