Washington (May 20, 2003) -- The Senate-approved economic growth package includes a measure introduced by Sen. Chuck Grassley, chairman of the Committee on Finance, which would prevent companies from seeking tax refunds based on overstated earnings. Final passage of the economic growth bill last week means Grassley's measure will be included in the deliberations as the Conference Committee convenes later this month.
The Wall Street Journal reported earlier this month that MCI and the Enron Corp. are in the process of collecting or filing for tax refunds or credits from the Internal Revenue Service because of tax payments on billions of dollars they falsely claimed to have earned. Qwest Communications International Inc., which plans to restate $2.2 billion in revenue, also is likely to seek a refund, the newspaper reported. HealthSouth Corp,. accused of overstating its earnings by more than $2 billion, said it is considering a refund.
"The con men pay a little tax to help hide their fraud, bump up the stock price and cash in their stock options," Grassley said. "They basically have made the IRS an unwitting accomplice to their fraud. My amendment raises the criminal penalties for tax fraud to the amount of tax at issue in both an overpayment and underpayment. This will ensure that corporate con artists pay their full freight for duping shareholders."
Grassley's amendment raises the criminal penalties for such tax fraud to the amount of tax at issue in case of overpayment due to misreported earnings. Legally, the penalty can't be retroactive, so the Grassley proposal is based on a company's activity after enactment of the tax bill.
"It's a back-door way to get back at the future Enrons of the world," said Mike Chakurun, director of federal and legislative affairs at the Alexandria, Va.-based National Society of Accountants.
-- Roger Russell
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