Enron: Now the IRS Joins the Hunt
The Internal Revenue Service has opened its own investigation of Enron, the beleagured and bankrupt energy trader, according to senior government investigators.
The IRS probe pushes to an even dozen the number of government inquiries into the accounting, securities, and pension practices of the failed Houston-based outfit. The Securities & Exchange Commission is investigating whether errors on Enron's financial statements constituted securities fraud -- a question that is also the subject of an investigation by a nationwide Justice Dept. task force.
LABORING OVER PENSIONS.
Simultaneously, the Labor Dept. is investigating Enron's pension plans, which barred employees from selling their Enron stock as the company melted down last fall. And President George W. Bush has ordered two Cabinet-level task forces to look into issues surrounding Enron's pensions and energy trading, while at least six committees in Congress have announced probes or hearings.
Contacted by BusinessWeek Online, the IRS would neither confirm nor deny any investigation, citing Enron's privacy rights as a taxpayer. Enron had no immediate comment, and its outside counsel, Washington attorney Robert Bennett, could not be reached for comment for this story.
The tax service could bring civil or criminal charges if it found that Enron's accounting snafus were reflected in its tax returns. The company declared bankruptcy in December following a rapid collapse triggered by a $586 million writedown of its earnings. The company had to restate its financial results after it determined that some of the partnerships it had established in a complicated web of asset swaps weren't independent, and thus should have been consolidated on Enron's books.
Details of the IRS probe were not available. But according to attorneys familiar with tax law, the agency could be looking into whether the original accounting treatment, which separated the partnerships' profits and losses from Enron's, misstated the giant company's tax liability. In particular, the probe could look at whether Enron claimed interest deductions for $1.2 billion in debt that it carried on its books as shareholders' equity.
The IRS also has jurisdiction over 401(k) pension plans. And the tax agency might be interested in the role of 800-plus offshore Enron subsidiaries and affiliates, many based in such traditional tax havens as the Cayman Islands, according to attorneys.
By Mike McNamee in Washington, with Wendy Zellner in Dallas