Firms Which Overstate Earnings Will Face Criminal Sanctions

by Leroy Baker, Tax-News.com, New York

19 May 2003

An amendment to the $350 billion tax cut bill approved by the Senate last week will bar firms which illegally overstate earnings as part of stock fraud from collecting refunds of the overpaid tax.

"The con men pay a little tax to help hide their fraud, bump up the stock price and cash in their stock options," Senate Finance Committee Chairman Charles Grassley, the Bill's sponsor, explained in a CBS report. "They basically have made the IRS an unwitting accomplice to their fraud."

The measure, which received unanimous support from the Senate, will make such activity a criminal act, and firms will face prosecution and a fine equal to the amount they are attempting to claim in refunded tax.

The amendment comes in the wake of revelations earlier this month that Enron and MCI are in the process of collecting refunds from the Internal Revenue Service from allegedly overstated earnings. However, according to Grassley, these cases will be excluded from the new rules as the amendment cannot be applied retroactively.

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