Enron Reaches Agreement Over Tax Returns, But Leaves Loopholes

by Mike Godfrey, Tax-News.com, Washington

08 March 2002

It was revealed on Thursday that former energy trading giant Enron has reached an agreement with Senate Finance Committee investigators over disclosure of its tax returns.

The Finance Committee is attempting to uncover whether, in addition to aggressive accounting practices, the company made use of aggressive tax avoidance schemes to manipulate profits and mislead shareholders. However, despite agreeing to release tax returns dating back to 1985, Enron has refused to guarantee the Committee access to advice letters from its lawyers on various tax strategies employed.

Experts suggest that opinion letters from lawyers stating the legality of a particular tax move are the easiest way to spot tax shelters, which are otherwise often hidden amongst the bewildering array of information contained in tax returns.

However, according to a report in the Wall Street Journal on Thursday, the organisation is concerned that agreeing to waive attorney-client privileges for the Senate Finance Committee investigators would mean agreeing to lift confidentiality procedures for all interested parties. This would include the IRS, which is reviewing Enron's tax returns to decide whether to file a claim for back taxes in the company's bankruptcy suit. It has been suggested that the decision on waiving privileges is likely to be made on a case by case basis.

The media and the public are likely to be kept in the dark throughout the process as well, as the agreement reached with the investigating authorities has stipulated that documents and tax information should not be leaked to reporters, and that disclosure should come through 'official reports, meetings or hearings'.

The company's attorney, Robert Bennett, has argued that the move shows that Enron has turned over a new leaf: 'This is just one more example of where Enron - the new Enron - is fully cooperating with the Government,' he explained to the WSJ. 'The Senate tax writing committees have a legitimate interest and Enron is going to cooperate.'

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