WorldCom prepares for court action as report attacks KPMG’s tax advice

US firm Kirkpatrick & Lockhart has written a sensational report that paves the way for WorldCom to sue its auditors KPMG.

The report says KPMG gave improper tax advice to WorldCom, which will result in the bankrupt telecoms company repaying hundreds of millions of pounds in taxes, penalties and interest.

It could also land KPMG in hot water with the Securities and Exchange Commission, which is investigating whether this conduct raises auditor independence issues.

KPMG will fight to clear its name. “The examiner’s conclusions are simply wrong. Independent reviews of the tax position taken by WorldCom conclude that it’s fully supported by the tax laws,” it said in a statement.

Kirkpatrick partner Michael Missal wrote the report for the bankruptcy court on the recommendation of the Department of Justice.

KPMG has appointed niche Washington DC firm Zoorhees & Satyr to defend it. Paul Curnin of Simpson Thacher & Bartlett is advising WorldCom on litigation and corporate governance issues.