Md. seeks $130 million from WorldCom

Schaefer files tax claim based on Del. shelters

March 25, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

In his latest salvo against corporate tax dodges, Maryland Comptroller William Donald Schaefer said yesterday that he is pursuing a $130 million income tax claim against WorldCom Inc., the telecommunications giant felled by a huge accounting scandal and now operating under bankruptcy protection.

Schaefer, who has already collected about $10 million in back taxes, penalties and interest from other companies operating in the state, filed a claim in U.S. Bankruptcy Court in Manhattan to recover the money from WorldCom. He joins other states that say WorldCom improperly sheltered income in Delaware holding companies, a technique to lower its state tax bills.

"Our recent victories against Delaware holding companies point out that we can beat tax evaders," Schaefer said in a statement. "Companies that file returns with manufactured deductions should look out. We will not tolerate such action."

A WorldCom spokeswoman said the Ashburn, Va.-based company, which plans to conduct business under a subsidiary name, MCI, has been dealing directly with Maryland and other states with a tax claim against the company. She was unable to say whether any agreements have been reached.

"These issues are currently the subject of ongoing discussions between MCI and the states that have filed in the bankruptcy court," spokeswoman Carolyn Tyler said. "The company is hopeful that the issues will be resolved in amicable commercial negotiations."

The company does not plan to pursue claims against the company that helped set up its tax arrangements, KPMG LLP, she said. WorldCom also has no plans to change auditors.

"MCI has every confidence in KPMG's ability to serve as the company's independent auditor," Tyler said.

Schaefer said that more than 20 states are pursuing back taxes from WorldCom. They include New York and Massachusetts, according to media accounts.

In Maryland, Schaefer said, WorldCom owes $62 million in taxes, penalties and interest for 1999 to 2002 as a result of sheltering some income in Delaware holding companies.

Another $55 million is being sought from the Delaware holding companies as a "defensive action," in case the court rules that the royalty deductions were proper. In that situation, Schaefer said, WorldCom's Delaware companies would owe the taxes because they received royalty payments from the Maryland companies.

The remainder of about $13 million represents additional claims for the years 1993 to 2002 unrelated to the royalties shelter.

The claims were made after an audit by the Multistate Tax Commission in Washington and a separate report by the independent examiner for the bankruptcy court, Richard Thornburgh, the former U.S. attorney general and Pennsylvania governor, confirmed the actions of WorldCom, Schaefer's office said.

He said the state is unlikely to be paid in full by the company, which is expected to emerge from bankruptcy protection by the end of next month.

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