MCI Bankruptcy Settlement Nets Massachusetts $34.6 Million

October 5, 2005
Tim Connolly
(617) 626-2369

BOSTON - Among the myriad of motions filed in the WorldCom Inc. bankruptcy case in 2003 was one from Massachusetts on behalf of several states asking for more time to make a claim arising out of a highly suspect and massive corporate tax shelter.

Eventually, the Multistate Tax Commission conducted an audit of WorldCom, claims were filed and after more than a year of negotiations, 15 states and the District of Columbia, will share a $315 million settlement of back taxes. WorldCom, which changed its name to MCI Inc. as it shed its Chapter 11 protection in 2004, and the states filed a settlement agreement this week in U.S. Bankruptcy Court in New York.

Mississippi, where WorldCom was based, received more than $100 million from MCI in a previously approved settlement. North Carolina is to receive $16 million in a separate agreement submitted to the court. South Carolina continues to negotiate with the company over a back taxes claim.

WorldCom employed a "state tax minimization program" through which its subsidiaries claimed billions of dollars in "royalty" deductions for the so-called "management foresight" of WorldCom's managers.

"It was just good, solid tax work," said Revenue Commissioner Alan LeBovidge. "We got the idea that there may be some state tax implications for MCI based on the disclosures by disgruntled bond holders. I think it's fair to say if we hadn't started the ball rolling on this, that none of the states would have realized any payments.

"Had I known at the start that we would be this successful, I would have charged a commission from the other states,'' LeBovidge joked.

Massachusetts will receive more than $34.6 million from MCI in the settlement that still must be approved by the U.S. Bankruptcy Court. A hearing on the agreement is set for October 11 in New York. Besides it role in the initial filing, Massachusetts was a driving force throughout the process and was joined by Georgia, Pennsylvania and Florida in leading the complicated negotiations on the settlement.