WorldCom May Have Avoided State Taxes
WorldCom Inc. may have improperly routed billions of dollars in revenue through a unit to cut state tax bills under a strategy devised by financial consulting and accounting firm KPMG, according to a court filing.
The July 31 filing, submitted by dissenting bondholders of WorldCom who oppose the company’s reorganization plan, alleges that the company sent $19 billion in revenue through unit MCI WorldCom Brands. That unit had been assigned the rights to WorldCom’s trademarks and intellectual property, in the years after WorldCom’s acquisition of MCI .
WorldCom filed for bankruptcy protection in July 2002 and is expected to emerge in October under the MCI name.
The revenue at issue stems from charges by MCI WorldCom Brands to other WorldCom subsidiaries for the right to use the WorldCom brand name.
Dissenting bondholders claim the money was not related to licensing the company’s intellectual property, but served as a “thinly veiled tax avoidance scheme.”
The royalties were part of a “total tax minimization” strategy devised by KPMG to lower state taxes paid by WorldCom’s operating units, the filing said.
Arthur Andersen was the company’s auditor at the time, but KPMG acted as an advisor on tax and royalty strategies. KPMG is WorldCom’s current auditor. “We’ve generally addressed tax and related issues in our plan of reorganization and intend to discuss them more fully as appropriate during our confirmation hearing,” a WorldCom spokeswoman said.
The bondholders’ complaints are the latest against the Ashburn, Va.-based company, which is embroiled in an $11-billion accounting scandal. The company has agreed to pay $750 million to settle the Securities and Exchange Commission’s charges of fraud.
Federal regulators also are probing whether WorldCom improperly diverted telephone calls over smaller carriers’ networks in the U.S. and Canada to avoid paying connection fees.
WorldCom has denied any wrongdoing.
Rival SBC Communications Inc., in an Aug. 12 letter to WorldCom Chairman Michael Capellas, said tests performed last week showed it was not being properly paid to connect long-distance calls from WorldCom’s telephone network. A copy of the letter was obtained by Reuters.
