MCI agreed to pay $100 million in cash to the state of Mississippi for back taxes the state claimed were owed by the company's predecessor, WorldCom.

Under the settlement terms, MCI also agreed to give $4.2 million to fund the Children's Justice Center, to pay $14 million in attorney's fees and to give the state possession of several WorldCom properties located in downtown Jackson, including the old WorldCom headquarters, William M. Quin, an attorney for the state, told WebCPA.

Mississippi Attorney General Jim Hood said the funds will help solve the state's budget crises.

Mississippi was one of more than a dozen states that filed a claim against WorldCom for back taxes. The states alleged that the telecommunications company improperly claimed billions in royalty expense deductions. Mississippi estimated that WorldCom owed it about $1 billion in taxes, Quin said.

WorldCom collapsed in July of 2002 after it revealed an $11 billion fraud. The company emerged from bankruptcy last year as MCI and moved its headquarters to Virginia.

Quin said Mississippi plans to file a claim for damages against WorldCom's auditor, KPMG, which devised the tax strategy in question.

"KPMG advised the scheme, they implemented the scheme, they were the brainchild," he told WebCPA.

KPMG spokesman George Ledwith said the Big Four firm provided MCI/WorldCom with "sound and appropriate tax advice" as part of the company's massive corporate restructurings in the late 1990s following a series of acquisitions and after the MCI merger.

Ledwith noted that the firm did not serve as MCI/WorldCom's tax preparer. "In fact, we neither prepared, reviewed, approved or signed MCI/WorldCom's tax returns," he said.

An earlier report by The Wall Street Journal said MCI is in discussions with 18 other states that claim WorldCom owes them about $750 million in back taxes.

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