(Washington, D.C.) The Council for Citizens Against Government Waste (CCAGW) today applauded legislation introduced by Sen. Rick Santorum (R-Pa.) that will close a loophole in federal tax law that has allowed bankrupt companies to continue to receive tax benefits from their net operating losses despite having their corporate debt dramatically reduced during the bankruptcy process.

“Senator Santorum’s bill will prevent companies like MCI from taking advantage of a significant tax loophole,” CCAGW President Tom Schatz said.  “Without this legislation, MCI could gain more than $2 billion in unwarranted tax benefits.”

Last month, the Securities and Exchange Commission (SEC) announced a fine of $500 million against MCI as punishment for its fraudulent behavior.  But the federal government has continued to award MCI contracts, including a $45 million contract from the Pentagon to build a cell phone network in Iraq and a seven-year, $7 million contract by the National Oceanic and Atmospheric Administration for satellite communications data.

“After already demanding a refund from the Internal Revenue Service for overpaying taxes based on their fraudulent earning statements, MCI could use this net operating loss loophole to more than pay their SEC fine,” Schatz continued.  “Sen. Santorum’s legislation will go a long way to ensuring that MCI is not allowed to effectively pay the SEC fine with taxpayer dollars.”

This legislation comes on the heels of Senate Governmental Affairs Committee Chairman Susan Collins’ (R-Maine) repeated inquiries into why the federal government has continued to award MCI contracts despite debarring Enron and Arthur Andersen after their accounting fraud was revealed.  MCI’s accounting fraud, the largest in history, contributed to shareholders losing $180 billion. 

“It’s clear that momentum is building in Congress to take substantive action against MCI.  The company already took investors for a ride; it should not be allowed to do the same to American taxpayers,” Schatz concluded.

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.