Companies charged for accounting irregularities face potentially colossal legal claims, but they may enjoy huge tax breaks next year, the Wall Street Journalreported.
Enron and WorldCom, for example, may try to structure any settlements so that they are tax deductible under Internal Revenue Service (IRS) rulings, including one issued four months ago, according to the newspaper.
Tax experts say the IRS allows such deductions because companies can write off any "ordinary and necessary" expense. Settling lawsuits long has been viewed as a cost of doing business - whether they involve truck accidents or highflying accounting schemes, the WSJsaid.
The paper also said even settlements with government regulators can be deducted in many circumstances, according to experts.
Merrill Lynch & Co, for instance, reached a $100 million settlement with the New York attorney general's office in May related to an investigation of whether the company promoted stocks that it expected to underperform to please corporate clients.
Several tax experts say Merrill's payment is probably tax deductible because it was characterised in the agreement as a civil settlement and not as a fine.
PA