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MCI may lose $7bn in tax breaks
Washington, Sept 04: The bankrupt telephone carrier MCI could see $7bn in future tax breaks disappear, according to experts, who say new rules adopted by the US treasury close a loophole for bankrupt companies.
Washington, Sept 04: The bankrupt telephone carrier MCI could see $7bn in future tax breaks disappear, according to experts, who say new rules adopted by the US treasury close a loophole for bankrupt companies.
MCI, whose legal name is WorldCom, declined to comment on the impact the changes will have on its plans to emerge from bankruptcy protection, for which a hearing is slated next week. But legal experts said the treasury ruling could be a cash drain on the company and force reconsideration of its bankruptcy plan.
The treasury department on Friday issued a temporary regulation on tax breaks for companies that have declared bankruptcy. If a parent company declares bankruptcy and shields cancelled debt from taxes, a subsidiary can lose tax breaks in the amount of debt that was forgiven in the company’s reorganisation, the US Treasury and the Internal Revenue Service said. A Treasury spokeswoman declined to link the regulation directly to MCI, but said the regulation could apply to a company in MCI’s situation.
“We do not know the specific circumstances for MCI, but because MCI has not been discharged from bankruptcy it is conceivable that it could be affected,” treasury spokeswoman Tara Bradshaw said. Jack Williams, a law professor at Georgia State University, said the ruling clearly had MCI in mind. So did members of the US Senate, who in June introduced a legislation intended to prevent companies like MCI from getting tax breaks on income from debt discharged in bankruptcy proceedings.
MCI, whose legal name is WorldCom but has adopted the name of its long-distance unit MCI to put an accounting scandal behind it, entered bankruptcy protection last summer after being enveloped in an $11bn fraud scandal. Oklahoma’s attorney general last week filed criminal charges against the company, charging MCI and six former executives with violating state securities laws.
Treasury and the IRS said on Friday that if a parent company declares bankruptcy and shields cancelled debt from taxes, a subsidiary can lose tax breaks in the amount of debt that was forgiven. Bureau Report
The treasury department on Friday issued a temporary regulation on tax breaks for companies that have declared bankruptcy. If a parent company declares bankruptcy and shields cancelled debt from taxes, a subsidiary can lose tax breaks in the amount of debt that was forgiven in the company’s reorganisation, the US Treasury and the Internal Revenue Service said. A Treasury spokeswoman declined to link the regulation directly to MCI, but said the regulation could apply to a company in MCI’s situation.
“We do not know the specific circumstances for MCI, but because MCI has not been discharged from bankruptcy it is conceivable that it could be affected,” treasury spokeswoman Tara Bradshaw said. Jack Williams, a law professor at Georgia State University, said the ruling clearly had MCI in mind. So did members of the US Senate, who in June introduced a legislation intended to prevent companies like MCI from getting tax breaks on income from debt discharged in bankruptcy proceedings.
MCI, whose legal name is WorldCom but has adopted the name of its long-distance unit MCI to put an accounting scandal behind it, entered bankruptcy protection last summer after being enveloped in an $11bn fraud scandal. Oklahoma’s attorney general last week filed criminal charges against the company, charging MCI and six former executives with violating state securities laws.
Treasury and the IRS said on Friday that if a parent company declares bankruptcy and shields cancelled debt from taxes, a subsidiary can lose tax breaks in the amount of debt that was forgiven. Bureau Report