Tax

KPMG Named in MCI Case

The SEC is said to be looking for the facts about a shelter hatched by the Big Four firm enabling the telecom to move revenue from state to state.
Stephen TaubJune 9, 2004

KPMG could be facing trouble again as a result of its tax-shelter business.

The Securities and Exchange Commission is investigating state tax shelters that KPMG designed for MCI, Reuters reported. The commission has asked for information about a shelter designed by the Big Four accounting firm that enables MCI, formerly known as WorldCom, to shift revenue among states to lower its taxes, according to a source cited by the wire service.

A coalition of 14 states has accused MCI of avoiding nearly $2.75 billion in taxes and blocked MCI from paying KPMG $146 million in fees, Reuters pointed out.

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The SEC’s request was reportedly revealed in a filing dated June 1 by a law firm for MCI detailing its bills for the first few weeks of April. The filing included a note that some of the law firm’s work involved a confidential SEC request for information about the tax shelters, according to Reuters.

MCI told Reuters in a statement that it had received a “routine confidential request from the SEC to voluntarily produce materials and information,” and that it had been cooperating with the request. It added it was still negotiating with the states over the back taxes.

Last month, a federal judge ruled that KPMG must furnish the Internal Revenue Service with the names of participants in a number of shelters and must produce related documents, according to Reuters.

In February, a federal grand jury in Manhattan was reportedly investigating the sale of tax shelters by KPMG to corporations and wealthy individuals who used them to escape at least $1.4 billion in federal taxes.