A parade of big companies is under investigation for inflating their earnings during the stock-market boom of the 1990s. Now some of them see an unusual silver lining: They want back the taxes they overpaid along the way.
In the latest wrinkle in the unfolding series of corporate scandals, MCI and Enron Corp. are in the process of collecting or filing for tax refunds or credits from the Internal Revenue Service because of tax payments on billions of dollars they falsely claimed to have earned. Qwest Communications International Inc., which plans to restate $2.2 billion in revenue, also is likely to seek a refund. Embattled HealthSouth Corp., accused of overstating its earnings by more than $2 billion, said that it hasn't made a final decision to file for a refund but is considering it.
Fraud or not, the current tax code makes no distinctions. It is a basic tenet of tax law -- both for individuals and corporations -- that those who overpay are entitled to a refund.
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With the number of corporate scandals and expected financial restatements at a historic high, no one knows just yet how much the federal government could have to forfeit on the refunds and credits. Even if such credits are ultimately lowered as part of settlements, observers believe that the federal government will probably be out hundreds of millions of dollars.
Investigations into fraud at MCI, which recently changed its name from WorldCom Inc., have uncovered accounting irregularities that are now expected to reach $11 billion. The fraud masked two years of losses at the country's second-largest long-distance company during the height of the telecommunications and technology boom of the late 1990s.
Already, as MCI prepares to emerge from bankruptcy in September, a person close to the situation says it has collected tax refunds of nearly $300 million on those now-discredited profits.
[...]
Richard Lipton, a tax attorney for the Chicago-based law firm Baker & McKenzie, 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," Mr. Lipton said, adding that corporate penalties for making a false tax return are capped at $500,000.
The overpayments are one more thing for shareholders to be upset about, since companies were deprived of the use of that cash. "You are really in a sense shortchanging shareholders," says Henry Hu, a corporate and securities-law professor at the University of Texas Law School. "It is a perverse set of circumstances. You are basically making gifts to the government in order to make yourself not look bad."
[...]
In a recent study of 27 companies charged with fraud, a University of Chicago accounting professor, Merle Erickson, found that top management apparently was willing to sacrifice tax payments made in cash in order to publicly report sham earnings and revenue gains. His study found that, on average, companies "sacrificed" 11 extra cents in taxes for each dollar of fraudulent earnings.
As it turns out, companies committing fraud were more afraid of the IRS than of their own auditors. Also, tax payments in the late 1990s weren't too much of an impediment to earnings as companies touted the measure known as Ebitda, or earnings before interest, taxes, depreciation and amortization as a more accurate gauge of their results and growth potential.
Even Enron, which paid just $63 million in taxes between 1996 and 2001, is seeking tax credits, say people familiar with the matter. That may be tough to collect, however, since the IRS has claims of its own, one person familiar with the company said. Enron spokesman Mark Palmer said that the company is "in settlement discussions with the IRS."
As Richard Lipton and Henry Hu point out above, it really is the shareholders' money that was stolen and given as a gift to the government to prop up the appearance of respectability. The IRS acted as an unwitting toll booth on the way to legitimizing the imaginary profits. These companies couldn't have achieved have the results they did simply by doing business, so they created a house of mirrors that included paying hundreds of millions of dollars in actual taxes that protected the illusion from further scrutiny. For a while, anyway.
Getting the money back from the IRS, out of the hands of the Bush administration (which helped to create this haze of corporate irresponsibility), and into the deserving hands of the shareholders who were swindled is therefore, in the words of an embattled Martha Stewart, still a good thing.
"Fighting AIDS on a global scale is a massive and complicated undertaking, yet this cause is rooted in the simplest of moral duties," President George W. Bush said Tuesday. "When we see this kind of preventable suffering, when we see a plague leaving graves and orphans across a continent, we must act. When we see the wounded traveler on the road to Jericho, we will not, America will not pass to the other side of the road."
Among those applauding Bush's speech were Focus on the Family's James Dobson, Prison Fellowship's Chuck Colson, and evangelists Franklin Graham and Anne Graham Lotz.
"Americans can do something about this modern plague—and we must," Colson and William J. Bennett wrote in a Washington Times op-ed that same day (which was very similar to Colson's March 17 Breakpoint radio commentary): "President Bush has correctly identified African AIDS as a humanitarian catastrophe of staggering proportions—one that a strong and merciful nation must throw its considerable resources into fighting. His $15 billion plan to do so is both simple and sensible."
In yesterday's Breakpoint commentary, Colson again affirmed the President's plan, but added a warning: "There's a danger that the president's initiative may be derailed in Congress. The House International Relations Committee failed to pass two critically needed amendments."
One would have set aside at least one third of the funding for abstinence and monogamy programs, and the other would have provided a conscience clause exempting faith-based groups from having to hand out condoms (some say the amendment would also allow groups to hire workers consistent with their religious beliefs).
A third amendment that some other religious conservatives were pushing for would limit funding to the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria, which is affiliated with the United Nations.
Who decided that it would cost at least $5 billion to say "stop having sex"? Only a theo-Republican without any understanding of virology or public health could have come up with that highly imaginative budget.
What do you expect from a felon who had a piety makeover?
Bush and Colson have so much in common, Colson wrote in his commentary yesterday:
The president made it clear that the House and Senate must act quickly, not only to pass a law, but also to make it clear that the faith-based community will be full participants. At the end of the meeting the president said, "We need to do this because it is the right thing."
I added, "It's not only the right thing, Mr. President—it works."
"I know that," he replied. "That's what delivered me from alcohol, and I wouldn't be sitting at this table otherwise."
I responded, "I wouldn't be sitting at the table either."
And think of all the Africans we could save if neither the ex-drunk deserter nor the Nixon felon were sitting at that table.
Fighting viruses with Bibles is not only bad medicine, it's another example of the fraud that passes for policy in the Bush administration.
Tell your representatives not to allocate AIDS in Africa money to any faith-based groups.
All but one are expected to surrender to federal authorities this morning and will likely be paraded into the courthouse in handcuffs.
The former executives to be named today are Ken Rice and Joe Hirko, co-chief executive officers of Enron Broadband Services; Kevin Hannon, chief operating officer of EBS; F. Scott Yeager and Rex Shelby, EBS executives; Ben Glisan, Enron treasurer; Dan Boyle, vice president; and [Lea] Fastow, who is married to former CFO Andrew Fastow and was a one-time assistant treasurer of Enron.
By 7:30 a.m., Rice, Hirko, Hannon, Yeager, Glisan and Boyle had surrendered at FBI headquarters on East T.C. Jester. "Prosecuting this guy is like prosecuting a piano player in a whorehouse," said Boyle's attorney Bill Rosch on the steps in front of the FBI building.
Piano players in the whorehouse indeed. What about the proprietors of the joint?
The best we can hope for is that Lea Fastow's indictment is a prosecutorial strategy to get her husband to implicate the twin madams of the best little whorehouse in Texas: Enron CEOs Ken Lay and Jeff Skilling. Hopefully this will happen sometime next year in the period leading up to the Republican convention in New York City, as fresh reminder of the damage these people and their lavish campaign contributions of fraudulent profits did to the office of the presidency.
As the US military grapples with the most ambitious peacekeeping and nation-building operation in 50 years, you might think that planners in the Pentagon are looking at ways to increase resources that support peacekeeping and peace enforcement. Well, you would be mistaken. The Department of Defense has just decided to eliminate its only institute devoted to such operations: the Peacekeeping Institute at the US Army War College in Pennsylvania. The Institute will close in October.
With only 49 peacekeeping centres in the world, some military and some civilian, Canada will have the sole remaining centre in North America.
The Peacekeeping Institute was created in July 1993 to guide the Army's strategic thinking on how to conduct peacekeeping and to document lessons-learned. It has operated with a staff of ten and a yearly budget of about $200,000 (out of an $81 billion annual Army budget).
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Now we have come full circle, with US forces having to make the transition from war fighters to peacekeepers in Iraq in a matter of days. The looting and lawlessness in Iraq's major cities suggests that the US military is ill-prepared to perform as peacekeepers. So, at a time when US soldiers are doing civilian reconstruction in Afghanistan and are the stewards of post-conflict Iraq, how could it happen that the Peacekeeping Institute will shut its doors?
The Pentagon's rationale is simple: the Peacekeeping Institute is a casualty of "force realignment". All bodies are needed at the front to fight the Global War on Terror. The institute's former director, Colonel George Oliver, has himself been deployed overseas to work with the Pentagon-led reconstruction effort in Iraq.
The absence of political champions for the only federal organisation dedicated to thinking strategically about the US military in peace operations points to an increasingly obvious disconnect in Washington: the Institute has no strong political constituency. It is a post-Cold War policy orphan, regarded with suspicion from the Left for being a child of the military and scorned by the Right for having the word "peace" in its name.
Not spending $200,000 in peacekeeping strategy, versus spending $100,000,000,000 in post-looting reconstruction costs. Brilliant.
"My concern is, what message does this send to the world?" Oliver told The Associated Press in a telephone interview from his office in Carlisle, Pa [in 2002]. "It's going to say that the U.S. military doesn't really care about peacekeeping." (Via the Cato Institute.)
A bit of retrospective looking at the transition between Clinton and Bush from Government Executive Magazine:
The National Security Council [in 1993] brought together senior officials (mostly assistant secretaries) from a range of agencies to consult on the shape of the Haiti operation as a whole, while assigning each one clear responsibility for a particular problem: establishing security to the Pentagon, lining up allies to the State Department, reforming the police to Justice, rebuilding the economy to Commerce. The resulting plan was detailed and comprehensive, yet still flexible enough that President Clinton could turn an invasion around in midair when the Haitian junta backed down and allowed U.S. forces to enter peacefully.
The coordination for Haiti became the model, embodied in a document called Presidential Decision Directive 56. Admittedly, "PDD-56 never quite worked the way I wanted it to," said retired Gen. Wesley Clark, who helped write the doctrine while a Pentagon staffer and then saw it truncated in the Balkans. But at least there was a plan for how to plan. Said Col. George Oliver, director of the Army's Peacekeeping Institute: It "was only a partial step forward, but it was a big step—sort of like the first step on the moon."
In February 2001, the newly inaugurated Bush administration effectively revoked the Clinton directive. Whereas Clinton had formalized coordination and centralized control through the National Security Council, Bush prefers a looser process that relies on his powerful (and sometimes competing) Cabinet secretaries, such as Defense's Donald Rumsfeld and State's Colin L. Powell.
Our national interests are not being served. Our allies have seen through the lies. Iraqi civilians are suffering because of the poorly planned nature of the invasion. But at least we've secured the oil fields.
The Bush administration is less a government than a cult.
Tuesday's 75-minute meeting was Bush's first face-to-face with Senate Majority Leader Bill Frist since the Tennessee Republican cut a surprise Senate deal to limit the president's proposed tax cut to $350 billion -- less than half what the White House was initially seeking.
"I apologized. I made a mistake," Frist said before the White House session, which included House Speaker Dennis Hastert, an Illinois Republican. "My goal is to grow the number as high as I possibly can," Frist added.
Nothing is more sacred to Republicans than moving hundreds of billions of dollars from the US Treasury into the groping hands of the rich — it just took Frist a little while longer than usual to have the logic of it spelled out for him. Now he has seen the light, and is a changed man.
Bush shrugged off the trappings of Harvard and avoided the official clubs that would showcase him in the yearbook and look good on his resume. Instead, he showed up for class looking like he had just rolled out of bed in the morning, often sat in the back of the room chewing gum or dipping snuff and made it clear to everyone he had no interest in Wall Street.
He was one of the few people who posed for his yearbook mug shot in a sports shirt, a wrinkled one at that. The other prominent picture of him in the book showed him sitting in the back row of class with longish hair blowing a huge bubble.
"This was [Harvard Business School] and people were fooling around with the accouterments of money and power," recalled April Foley, who dated Bush for a brief period and has remained friends with him. "While they were drinking Chivas Regal, he was drinking Wild Turkey. They were smoking Benson and Hedges and he's dipping Copenhagen, and while they were going to the opera he was listen to Johnny Rodriguez over and over and over and over."
April Foley was just nominated by her ex-boyfriend, now the president of the United States, to the Export-Import Bank board, which has been called "a tool for an elite group of politically well-connected corporations to get sweetheart deals and cheap financing courtesy of American taxpayers."
Which well-connected corporations? "The bulk of Export-Import's benefits go to a small number of large companies that are sophisticated enough to get financing on their own: Boeing, Halliburton, General Electric, Northrop Grumman, Lucent Technologies, ChevronTexaco, Caterpillar and Dell Computer, among others...."
Go read all the gory details — including the international finance loops that include Osama bin Laden and Riley Bechtel — at bad things, who rightly points out that April Foley is a cipher as far as the Internet is concerned.
The families of those whose remains he will desecrate with his cheap political stunt feel otherwise (New York Times letter to the editor):
To the Editor:
Re "Bush's Aides Plan Late Sprint in '04" (news article, April 22):
Since the worst terrorist attack in American history, which took the life of my brother, occurred in New York on Sept. 11, it seems appropriate that President Bush will be making his re-election bid from that city at that time in 2004.
Perhaps the millions of unemployed Americans, veterans whose benefits have been threatened, families of dead civilians in Afghanistan and Iraq, working people who lost their pensions to corporate fraud, and 41 million Americans without health insurance can come to town and join him in celebrating the other achievements of his first term.
DAVID POTORTI Cary, N.C., April 23, 2003
The achievements of Bush's first term are substantial. Too bad they're the wrong ones, having nothing at all to do with those who harm America. The Iraqi oil fields are open for business — but where's Osama bin Laden? The first tax cut for the rich was enacted and the second is on its way — but where's Ken Lay?
In 2000 [while Clinton was still in office], 8 percent of Houston area residents called "economy, poverty" the biggest problem facing the area. In 2003, that figure more than tripled to 25 percent.
Job opportunities were considered "excellent" or "good" by 73 percent back in 2000. In 2003, that figure is nearly halved to 39 percent. The proportion that considers job opportunities "poor" quadrupled over the same period.
A majority (53 percent, compared with 45 percent in 1997) support civil rights initiatives for gay men and women.
What a difference a few years make. Houston was of course hard-hit when Bush financier Enron went all MOAB on the region.
Funny how a governor of Arkansas can be more in step with what Texans want than a governor of Texas.
KUWAIT CITY, April 24 -- Nearly three weeks after U.S. forces reached Iraq's most important nuclear facility, the Bush administration has yet to begin an assessment of whether tons of radioactive material there remain intact, according to military officials here and in Washington.
Before the war began last month, the vast Tuwaitha Nuclear Research Center held 3,896 pounds of partially enriched uranium, more than 94 tons of natural uranium and smaller quantities of cesium, cobalt and strontium, according to reports compiled through the 1990s by inspectors from the International Atomic Energy Agency.
Immensely valuable on the international black market, the uranium was in a form suitable for further enrichment to "weapons grade," the core of a nuclear device. The other substances, products of medical and industrial waste, emit intense radiation. They have been sought, officials said, by terrorists seeking to build a so-called dirty bomb, which uses conventional explosives to scatter dangerous radioactive particles.
Defense officials acknowledge that the U.S. government has no idea whether any of Tuwaitha's potentially deadly contents have been stolen, because it has not dispatched investigators to appraise the site. What it does know, according to officials at the Pentagon and U.S. Central Command, is that the sprawling campus, 11 miles south of Baghdad, lay unguarded for days and that looters made their way inside.
First was the radioactive material from Halliburton and now this. How many ways do we need to supply anarchists with ingredients for dirty bombs?
And how many impeachable offenses do we need to get the ball rolling and end this perverse administration?
What the world needs now is Spy Magazine. This Rake Magazine interview with Kurt Andersen, founding co-editor of the brilliant Spy magazine, reminds us that there is a gaping hole in the somnolent 2003 media world — a hole that could be filled with smart, skeptical humor as an antidote to the arrogance, conformity and faux piety that saturates the American mainstream.
