Annapolis, Md. (March 26, 2004) -- Maryland is seeking up to $130 million in back taxes, penalties and interest from MCI, formerly known as WorldCom.

Comptroller William Donald Schaefer filed income tax claims against the company in New York bankruptcy court this week, alleging that MCI/WorldCom owes the state $62 million in tax, penalties and interest for tax years 1999-2002 as a result of illegal royalty deductions and income-shifting strategies. An additional claim of $55 million was filed as a defensive action, so that even if a court rules that the royalty deductions were proper, the entities receiving the royalties would still owe Maryland tax. The balance, about $13 million, represents additional claims for a non-filing entity for tax years 1993-2002.

Maryland's Schaefer said he expects more than 20 states to file similar claims. Massachusetts is seeking to collect $90 million in back taxes, interest and penalties from MCI.

In a statement, Schaefer said the state's claims against MCI/WorldCom are "unlikely to be paid in full," since the company's recent income statements show "extensive losses."

MCI, which filed for bankruptcy in 2002 following a $10.6 billion accounting scandal, is expected to emerge from Chapter 11 protection next month.

Earlier this week, a judge directed MCI to temporarily stop payments to its auditor, KPMG, after a coalition of 14 states, known as the Multi-State Tax Commission, asked the judge to disqualify the accounting firm as the company's auditor. A hearing on that issue is set for April 13.

-- WebCPA staff

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