Enron And Others Restate Income, Look For Big Tax Refunds
Big companies that made news in recent years for inflating income in order to meet Wall Street demands are in the news again. This time the companies are making headlines for what some feel is a nervy gesture of claiming federal income tax refunds after restating their income to true levels.
Enron is in the process of filing for tax credits after paying taxes on billions of dollars they reported on tax returns but didn't actually earn. Similarly, MCI (Formerly WorldCom) has already received refunds of nearly $300 million in taxes overpaid on inflated earnings.
Qwest Communications and HealthSouth are expected to seek significant refunds or credits in the near future. HealthSouth has been accused of inflating earnings by $1.4 billion since 1999 and overvaluing assets. "Logically, if we overpaid taxes on income we didn't have, we may seek a refund," said Andy Brimmer, spokesman for HealthSouth. Executives at Qwest Communications have been accused of booking revenue before it was earned in strict violation of SEC rules. It is estimated that Qwest inflated revenues by $144 million in 2000 and 2001.
Senate Finance Committee Chairman Charles Grassley (R-IA), is not amused. He believes the companies should be liable for criminal fines for filing false tax returns and said he plans to encourage the Justice Department to "take aggressive action against the companies and individuals who were in on the con."
Tax attorney Richard Lipton defended the rights of the companies to recoup their tax overpayments. "It's not the government's money. It's the shareholders' money," he said in a recent article in The Wall Street Journal. ["After Inflating Their Income, Companies Want IRS Refunds," The Wall Street Journal, Friday, May 2, 2003]