MCI Agrees To $315 Million Back Tax Settlement

by Mike Godfrey, Tax-News.com, Washington

01 September 2005

It has emerged that MCI, formerly known as WorldCom, has provisionally agreed to pay $315 million to 14 states in an attempt to settle claims for back taxes.

The states claim that the company, which emerged from Chapter 11 bankruptcy protection last year after a US record $11 billion accounting fraud, avoided paying income taxes by making units pay out much of their income in the form of royalties to the parent company for such assets as "management foresight".

In May of this year, MCI agreed to settle with the state of Mississippi, where the firm had its headquarters, by paying $100 million in back taxes. It has also agree to hand over its empty facility in Jackson, Miss, to the state.

Sources familiar with the new settlement, covering the years 1999 to 2002, which MCI's board is expected to approve soon, say that New Jersey will be the biggest beneficiary, receiving $51.5 million, Reuters has reported.

The next largest award, of $44.6 million, will go to Pennsylvania, followed by Georgia at $38 million. Massachusetts, which led the effort to collect the back taxes, stands to receive $33.2 million.

Earlier in the year, MCI agreed to be acquired by Verizon Communications Inc for $8.4 billion.

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