Mississippi May File KPMG Charges
Mississippi probably will file criminal charges against accounting giant KPMG because it created a tax strategy that the state says illegally let WorldCom, now called MCI Inc., shield billions of dollars from taxes, sources close to the case said Friday.
Although a few other states have also weighed this strategy, Mississippi Atty. Gen. Jim Hood is the most determined, and his state would be the first to take this step, said the sources, who requested anonymity.
A KPMG spokesman declined to comment. Jacob Ray, Hood’s spokesman, said, “It is our standard policy to neither confirm nor deny investigations.”
Mississippi, where MCI was based until 2003, when it moved to Ashburn, Va., has previously acted alone.
In May, Mississippi became the first state to settle back tax claims with MCI, accepting $100 million in cash and the No. 2 long-distance carrier’s former headquarters building.
KPMG devised MCI’s tax strategy, which treated management foresight as a royalty. Mississippi says it would not have approved the plan had it been told that category was included.
About 15 other states and the District of Columbia are still thrashing out hundreds of millions of dollars of back tax claims with MCI because of this royalty strategy.
The sources familiar with Mississippi’s plans said it would be easier for a group of states to build a case against KPMG because they could share information and resources. “It would be better if there were more” states, one said.
Accounting giant Arthur Andersen collapsed after the Justice Department indicted it in 2002 on a charge of obstruction of justice related to its role as auditor for energy trader Enron Corp. Many firms have rules barring them from doing business with a party under criminal indictment.
KPMG already is coping with the Justice Department’s criminal probe of its tax shelters for wealthy individuals. But the accounting firm has said it is cooperating with the Justice Department and in a statement said it “takes full responsibility for the unlawful conduct by former KPMG partners” involved in the probe of shelters the firm sold from 1996 to 2002.
Under Mississippi law, “any person who willfully attempts in any manner to evade or defeat any tax ... or assists in the evading of that tax or payment thereof” can be found guilty of a felony, one of the sources said. Penalties can be as many as five years in prison, and fines can be as much as $500,000.
One of the sources said Mississippi probably would reach beyond the corporation and to the KPMG officers or other employees who crafted MCI’s royalty strategy.
“I think you just have to dig in and find who carried the load for them,” the source said.