Report Next Week On Enron's Taxes To Explore Pay Issues

By Rob Wells
648 words
7 February 2003
01:14 pm
Dow Jones International News
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)

OF DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The Senate Finance Committee next week will receive a yearlong investigation into Enron Corp.'s (ENRNQ) use of tax shelters, a report containing revelations about executive pay practices at the bankrupt energy giant, according to people familiar with the report.

The committee will hold a hearing next Thursday to hear from Lindy Paull, chief of staff of the Joint Committee on Taxation, which wrote the report after getting direct access to Enron's tax returns from 1985 to 2001.

One person familiar with the report said it will examine executive compensation and corporate governance issues at Enron. The report will recommend specific changes the tax laws on the executive pay matters and tax shelter issues, said the person, who spoke on condition of anonymity.

Details of the findings haven't been shared with committee members or their staffs. Two congressional aides said they've been told the executive compensation findings will be substantial.

Enron agreed in March 2002 to waive taxpayer confidentiality laws and provide the Joint Committee of Taxation, which analyzes tax laws for Congress, copies of its returns. Since then, some staff of the Joint Committee have made repeated investigative visits to Enron's headquarters in Houston.

Once the world's largest energy trader, Enron filed for bankruptcy protection in December 2001 after it failed to get financing to continue operations.

Citizens for Tax Justice, an advocacy and research group, said last year that Enron apparently didn't pay corporate income taxes in four of the past five years. The company made heavy use of offshore tax shelters, took large deductions for stock options, and engaged in other tax avoidance strategies, the group said.

The Enron hearing will include four experts in corporate accounting and employee benefits. While they have all been asked to prepare written testimony, their roles will predominantly be to provide "color commentary" on the report, one congressional aide said.

The report and the presentation of the report by Paull will be relatively straightforward and neutral in tone, said one Senate Republican aide. The professors invited will be there to translate the report into terms and scope understandable to average listeners, according to the aide and another Finance Committee source said.

"They are going to be a John Madden," explained one Senate Republican aide, referring to the football commentator for ABC.

Scheduled to testify is John Seida, an assistant professor at the Mendoza College of Business at Indiana's University of Notre Dame, who has studied Enron's tax transactions from public reports.

Also testifying will be George Plesko, assistant professor at Massachusetts Institute of Technology Sloan School of Management; Edmund Outslay, an accounting professor at the Eli Broad College of Business at Michigan State University; and Kathryn Kennedy, an associate professor at the John Marshall Law School in Chicago.

Seida said Friday he will prepare testimony advocating a more public disclosure of a corporation's tax liability. Seida argues that had Enron been required to more publicly disclose the wide discrepancy between its tax income and book income, it might have "raised more red flags" and thus averted the crisis.

Plesko also has written extensively on the relation between financial and tax reporting of income. He has argued that while businesses should not be required to disclose their tax returns, fuller financial disclosure might be appropriate.

Kennedy has practiced with the law firm of McDermott, Will & Emery in Chicago and was an actuary with the actuarial consulting firm of Towers Perrin. She has written several articles on employee benefits issues and has lectured at legal and actuarial seminars.

Outslay, Plesko and Seida have published articles on Enron.

-By Rob Wells and John Godfrey, Dow Jones Newswires; 202-862-9272; rob.wells@dowjones.com or john.godfrey@dowjones.com

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