WorldCom just can't win, despite $300m tax rebate

WorldCom, the US telecoms company involved in the largest ever accounting fraud in the US, is in hot water again. This time, however, it's for following the letter of the law instead of brazenly flouting it.

Having falsely claimed to have made $11bn (£6.7bn) profits since 1999, the company has realised that it had paid too much tax based on its inflated earnings. So it has just negotiated a $300m rebate from the US Internal Revenue Service (IRS).

A WorldCom spokeswoman said: "We have received it. But we worked with the IRS at every step of the way. To our competitors who are upset about that, well, all I can say is that we followed the law."

The news comes as WorldCom was last week ordered to pay a record $500m fine to the financial regulators as a punishment for its fraud. The actual size of the fine should have been $1.5bn, but the US bankruptcy court has agreed to reduce the penalty.

On Friday, a Federal bankruptcy judge signed off WorldCom's disclosure statements. This will allow creditors to vote on the company's plans to emerge out of Chapter 11 bankruptcy protection later this year, when it will be renamed MCI.

But the run of good fortune at WorldCom has irked many US politicians. Senator Chuck Grassley, chairman of the Committee on Finance, is one. He has tabled an amendment to the US economic growth Bill preventing companies from seeking tax refunds based on overstated earnings.

Having seen WorldCom's success in wringing money out of the tax authorities, other companies, such as Enron and Qwest, are also understood to be considering following suit.

Senator Grassley is also looking at ways of making the companies pay back their tax refunds. He said: "I don't intend to stand by and let today's boardroom con men slink into the shadows untouched. I'll contact the Department of Justice's Corporate Task Force to ensure that full and proper attention is given to these cases where payment of taxes was just part of the bag of tricks to fool shareholders."

WorldCom's tax rebate isn't the only issue that has got politicians hot under the collar. They also want to know why WorldCom has been awarded the first telecoms contract in Iraq.

WorldCom will build a small network in Baghdad even though the company has little experience in this area of telecoms. The deal has prompted an investigation by the US Governmental Affairs Committee.

WorldCom's former chief executive, Bernie Ebbers, is still under investigation. Scott Sullivan, WorldCom's former finance director will stand trial early next year.