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Politics : The Donkey's Inn -- Ignore unavailable to you. Want to Upgrade?

To: Mephisto who wrote (6872)	6/6/2003 12:51:29 PM
From: Skywatcher	Read Replies (2) \| Respond to of 15516

Lobbyists Fight In Congress Over MCI Bankruptcy Tax Gain Thursday June 5, 5:24 pm ET By Rob Wells, OF DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- A major lobbying battle is underway in Congress aimed at limiting nearly $7 billion of tax benefits MCI Group is set to receive when it emerges from bankruptcy. The company's rivals, led by AT&T Corp. and Verizon Communications , want to deny the tax breaks for MCI, formerly known as WorldCom Inc., which committed the largest fraud in corporate history. Sen. Rick Santorum of Pennsylvania, a member of the Senate Republican leadership, is leading an effort to prevent Virginia-based MCI from keeping $6.6 billion in tax benefits, known as net operating loss carryforwards, when it emerges from bankruptcy. While Santorum's proposal addresses the MCI bankruptcy issue, it also applies more broadly to tax benefits enjoyed by other companies emerging from bankruptcy. MCI contends preserving the tax benefits is a legal practice, one employed by other companies emerging from bankruptcy. Santorum unsuccessfully attempted to put the measure on the $350 billion tax cut and state aid bill during Senate debate last month. Despite that setback, he's looking to have what he calls a major tax loophole closed this year. "The Senator is very active on this, very interested in moving the ball forward," Santorum spokeswoman Erica Wright said Thursday. Senate Finance Chairman Charles Grassley, R-Iowa, pledged to study the issue with an eye on hearings later this year. "We will look into it with the same vigor that I pursued other corporate tax shelters," Grassley said last month. "I don't think it is going to get lost in the dust." Under the tax law, debt that is forgiven is counted as income. Yet for companies emerging from bankruptcy, the IRS doesn't require companies to count forgiven debt as income. Instead, it seeks to count the forgiven debt against the value of "tax attributes" or benefits that reduce taxes such as net operating losses or depreciation allowances. MCI's bankruptcy reorganization plan is structured so a debt discharge may not effect the $6.6 billion in net operating losses, effectively allowing them to preserve the tax benefits after bankruptcy, according to analysts. Santorum contends preserving the $6.6 billion in losses will mean MCI won't have to pay taxes for years in the future. This would place MCI at a significant competitive advantage over rivals Verizon and AT&T. "This is a huge loophole," Santorum said last month. "You have the biggest stock scandal in history. MCI comes out of bankruptcy, and they are setting a new accounting standard which is as scandalous as the first one." The bankruptcy reorganization already was controversial since MCI would emerge with $4 billion to $5 billion in debt, less than the $54 billion debt of Verizon and $18 billion of AT&T. AT&T spokeswoman Claudia Jones said the tax strategy is particularly galling given MCI's involvement in a huge corporate accounting scandals. "The fact they have the nerve to go out and ask for tax refunds now that they've been caught with doing something wrong is beyond belief for us," Jones said. MCI spokeswoman Julie Moore said the attack is part of a broader attack by rivals, which also seeks to force liquidation of MCI or deny its U.S. government contracts. "This effort is simply part of a massive, well-funded public relations campaign that's been orchestrated by some of MCI's biggest rivals who are more concerned with killing competition than they are with the principles of tax law, " she said. MCI, in a May 15 disclosure statement filed with the bankruptcy court, said it has about $6.6 billion in net operating loss carryforwards as of Dec. 31, 2001; such losses can be used to reduce future income taxes. The MCI filing said "federal income tax consequences of the plan are complex and are subject to significant uncertainties." A major uncertainty now for Santorum's bill is its effect on federal revenues. Analysts expect the legislation, by closing what Santorum calls a loophole, will raise federal revenues. The Joint Committee on Taxation, which makes such calculations, hasn't finished its study of the measure, Santorum's office said. It's also unclear whether MCI's strategy will prevail given the ambiguity in current tax law. One analyst pointed to a proxy statement filed last month by wood products maker Armstrong Holdings Inc. that touched on the issue. "Where a debtor joins in the filing of a consolidated federal income tax return, it is unclear whether the reduction in NOLs (net operating losses) and other consolidated tax attributes occurs on a group basis or instead on a separate company basis," according to the Armstrong filing. Calculating the reduction on a consolidated return could wipe out the tax benefit, one analyst said. CC