WASHINGTON Enron's schemes fuel Dems' efforts to cut tax shelters
Even the IRS was fooled by Enron's manipulation of the tax laws.
WASHINGTON (AP) -- Evidence of Enron Corp.'s use of complex schemes to lop millions of dollars off its federal tax bill, inflate its income and pay its executives lavishly provides fresh ammunition to lawmakers pushing a crackdown on corporate tax shelters.
And the revelations, made public Thursday in a report by the House-Senate Joint Committee on Taxation, throw a new spotlight on the big accounting firms, investment banks and law firms that advised Enron on the transactions that stretched legal boundaries and confounded even the Internal Revenue Service.
The deals enabled the now-bankrupt energy trader to reap more than $2 billion in questionable tax and accounting savings, the tax panel found in a report of its yearlong investigation.
What's being tried
Enron's skillful manipulation of the tax laws and the fact that other big U.S. corporations do the same are fueling an effort by lawmakers to tighten the rules governing tax shelters.
Senate Democratic leader Tom Daschle put a political tone on the issue Thursday as he called the report "a call to action, and we will act."
Democrats have pushed legislation to deny tax benefits on sham transactions, but the Bush administration "has continued to oppose it even after the collapse of Enron," said Daschle, D-S.D.
"I call on the administration to stand up for honest taxpayers instead of continuing to resist efforts to crack down on corporate tax shelters."
Enron, which in December 2001 slid into what was then the biggest corporate bankruptcy in U.S. history, set up a dozen transactions that used techniques like claiming the same tax loss twice, according to the report.
With names like Project Apache, Project Renegade and Project Condor, the transactions show a vast new arena of Enron activity beyond the web of off-balance-sheet schemes and partnerships that have already been revealed.
Part of the scheme
The company's outside advisers -- including Bankers Trust, Chase Manhattan, Deloitte & amp; Touche and fallen Arthur Andersen -- did not escape blame from senators and congressional investigators at a Senate Finance Committee hearing on the report.
The advisers, who received some $88 million in fees from Enron, colluded in the deception, said Sen. Max Baucus of Montana, the Finance Committee's senior Democrat.
"Enron and its advisers conspired to mine the tax code for tax schemes. ... They ensured that no one -- particularly the IRS -- would ever discover what they were up to."
Enron's collapse destroyed the retirement savings of thousands of employees and hurt individual investors and pension funds nationwide. The joint tax committee's inquiry was among more than a dozen congressional investigations last year into the Houston-based company's bankruptcy.
Enron paid no federal income tax at all from 1996 through 1999, $63.2 million in 2000 and nothing again in 2001.
An Enron chart, included in the report, stated that the company's cumulative earnings from tax planning amounted to more than $1 billion for 1995-99, and that Enron contemplated that the various tax schemes would operate for years, even decades.
What's in report
Enron's tax deals "pushed the concept of business purpose to the limit (and perhaps beyond)," the panel's report says. "Enron's behavior illustrates that a motivated corporation can manipulate highly technical provisions of the law."
By using advice from sophisticated lawyers, investment bankers and accountants, "corporations like Enron have an inherent advantage over the IRS," it says.
Lindy Paull, the joint panel's chief of staff, stopped short of saying Enron violated tax laws, telling senators that Enron gained "inappropriate benefits" from its use of the schemes. "This result should not happen under the tax code," she testified.
Regarding Enron's outside advisers, which also included law firms Vinson & amp; Elkins and King & amp; Spalding, Paull said, "We would say at a minimum that they turned a blind eye to some critical facts."
The company's tax department became a profit center, with its own annual revenue targets, the report shows.