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The Senate Finance Committee chairman said Friday he is asking federal prosecutors to move against companies caught up in accounting scandals that are seeking tax refunds because they overpaid based on the artificially inflated profits they reported. WorldCom, Enron, Qwest Communications and HealthSouth are either pursuing or considering filing for federal tax refunds or credits for payments made on billions of dollars falsely claimed as earnings. Sen. Charles Grassley, R-Iowa, the finance panel chief, said he will “encourage (the Justice Department) to take aggressive action against the companies and individuals who were in on the con.” The action could include levying criminal fines, which Grassley said may have to be increased to cover the full amounts of tax refunds falsely claimed by companies. The four companies — all under investigation by federal authorities for accounting violations — were among the biggest corporate scandals that came to light over the past year and a half. “These bad actors made the IRS an unwitting accomplice to their fraud,” Grassley said in a statement. Telecommunications giant WorldCom, which is seeking to emerge from bankruptcy protection and officially change its name to MCI in the fall, already has collected $300 million in tax refunds from the Internal Revenue Service. Mississippi-based WorldCom filed the largest corporate bankruptcy in U.S. history last summer after disclosing what appears to be the biggest accounting fraud ever, nearly $11 billion. The refunds were first reported in Friday’s Wall Street Journal. A spokesman for WorldCom declined to comment on the tax refund issue. IRS spokeswoman Nancy Mathis said the agency would have no comment. The government also is to blame “for allowing these practices to go on,” said Pete Sepp, a spokesman for the National Taxpayers Union, noting that the government benefitted from the extra tax revenue paid by the companies on their bogus earnings. “The big enabler in this is the tax code.” HealthSouth, which has not decided whether to seek a refund, said it overpaid $300 million in federal taxes because of inflated income. “Logically, if we overpaid taxes on income we didn’t have, we may seek a refund,” HealthSouth spokesman Andy Brimmer told the Journal. Eleven former HealthSouth executives have agreed to plead guilty since March, when the Securities and Exchange Commission filed a civil lawsuit accusing company and founder Richard Scrushy of a huge accounting fraud that overstated profits by at least $2.5 billion since 1997. The company, with nearly 1,700 facilities in all 50 states, calls itself the largest U.S. provider of diagnostic imaging, outpatient surgery and rehabilitation services. Now-bankrupt Enron, which paid only $63 million in taxes between 1996 and 2001, is seeking tax credits, while Qwest is believed likely to seek a refund. “We are not commenting other than to confirm we are in discussions with the IRS,” Enron spokeswoman Karen Denne said. “I’m not going to comment on the content of those discussions.” Qwest spokesman Chris Hardman said, “The company is currently in the process of restating its financials and has not yet determined what the impact would be regarding a potential credit.” He declined to elaborate and said he did not know how much Qwest had paid in taxes. A Chicago-based tax attorney said corporate fraud should have no effect on the ability of companies to recoup tax overpayments. “It’s not the government’s money, it’s the shareholders’ money,” Richard Lipton, the tax attorney, told the Journal. In fact, a HealthSouth shareholders’ lawsuit filed last month in federal court in Birmingham, Ala., wants any amount the company is refunded by the IRS to go to shareholders. Copyright 2003 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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