Enron Corporation Avoided Federal Tax Obligations with Stock OptionsBy Peter Behr
THE WASHINGTON POST -- WASHINGTON
Enron Corp.’s 200 highest-paid executives received total compensation of $1.4 billion in 2000, more than triple the amount the year before and more than the company’s $979 million in reported corporate profits, according to a three-volume report the congressional Joint Committee on Taxation issued Thursday. The executives’ compensation, mostly stock option awards, enabled the Houston company to wipe out nearly all its federal tax obligations that year.
While its compensation strategy was erasing tax bills in the late 1990s, Enron was turning its tax department into a profit center, the report found. Its senior executives joined with leading accounting, banking and legal advisers to manipulate tax laws through complex, concealed transactions that generated $651 million in artificial profit between 1995 and 2001, the report said. Enron paid these advisers $88 million in fees in that six-year period in a relationship the committee called “incestuous.”
Sen. Charles Grassley (R-Iowa) chairman of the Senate Finance Committee, said at a hearing on the report that he intended to introduce legislation that would bar other corporations and their outside advisers from imitating Enron’s “tax schemes,” effective with Thursday’s hearing. “I don’t care if it takes five years to get the legislation passed, the date will hold,” he said.
Without new sanctions, the Internal Revenue Service will continue to be outwitted by corporate tax filers, as it was by Enron and its advisers, the report said.
The committee’s top Democrat, Sen. Max Baucus (D-Mont.) endorsed Grassley’s pledge, calling the report a “wake-up call” on corporate tax abuse.
One Republican tax lobbyist said the Enron tax report has caused a rush of anxiety among Washington’s law firms. Some worry that lawmakers will try to use the joint committee’s loophole-closure recommendations to offset some of the cost of President Bush’s $665 billion tax cut plan, the lobbyist said. So the business community is gearing up for a major fight.
The joint committee’s report, released after a yearlong investigation, “stunned” Lindy Paull, the committee’s longtime chief of staff, she said.
Hundreds of pages of confidential flow charts describe how Enron engineered swaps of assets and securities between its divisions and some of its financial partners to accelerate billions of dollars in tax deductions.
In some cases, deductions were counted twice. Other deals allowed Enron to deduct loan principal payments, not merely interest. Other transactions appeared to shuffle paper between Enron units, with little of real value changing hands, the committee found.