Report on Enron Targets Tax Schemes - TheStreet

Updated from 1:38 p.m. EST

Enron

, long synonymous with shady corporate accounting, also appears to have been a giant corporate tax dodger.

The congressional Joint Committee on Taxation on Thursday released a three-volume report that documents the wide array of tax shelters, loopholes and off-balance sheet deals

Enron

used to avoid paying federal taxes.

Senate Finance Chairman Charles Grassley (R-Iowa), who sits on the committee, called the findings "eye-popping." Meanwhile, Sen. Max Baucus (D-Montana), the ranking Democrat on the Senate Finance Committee, said the report shows that the now-bankrupt energy trader "abused the tax code."

Specifically, the report found that Enron used a dozen different tax schemes to save paying more than $2 billion in taxes from 1995 to 2001, and that Enron had come to view its tax department as a potential profit center for the company.

"Enron's structured transactions were designed to permit Enron to take the position that its long-term tax benefits could be converted to current or short-term financial statement net income," the report said. "Enron deliberately and aggressively engaged in transactions that had little or no business in order to obtain favorable tax and accounting treatment."

Congressional investigators also found that

Arthur Anderson

, Enron's former accountant, along with a number of law firms and Wall Street firms, played a critical role in orchestrating deals. Anderson is in the process of winding down its operations after being convicted last year of obstruction of justice in the federal investigation into the collapse of Enron.

In particular, the report singles out

J.P. Morgan Chase

(JPM) - Get Report

and Germany's

Deutsche Bank

as having played a prominent role in advising Enron on its tax deals. Houston-based law firm Vinson & Elkins, Enron's longtime outside legal advisor, also issued opinions approving of many of the tax deals.

Separately, the Valentine's Day gift that the special examiner in Enron's bankruptcy had planned to deliver to Wall Street on Friday will be delayed. That report, which takes a look at some of the same tax deals, is even more sweeping than the congressional inquiry.

The parties in the bankruptcy case agreed to postpone the release of the report, now estimated at 2,000 pages, until Feb. 28. The delay will give Enron and its many creditors time to review the report, which seeks to unravel dozens of Enron's off-balance sheet transactions.

The filing, which will be as thick as a Manhattan telephone book, is likely to point some fingers in the direction of the Wall Street banks, law firms and accountants that helped structure those deals for Enron, and in some cases were even investors in them. Neal Batson, the Atlanta attorney who authored the report,

filed it under seal with the bankruptcy court last month.

Initial reports indicated that Batson has concluded that Enron may have used a maze of off-balance sheet deals to improperly move $5 billion in assets off its balance sheet in an attempt to juice its earnings and lighten its tax burden.

In theory, Enron's creditors, which include

Citigroup

(C) - Get Report

, J.P. Morgan,

Merrill Lynch

(MER)

and

Credit Suisse First Boston

may be entitled to go after those assets if they still have any value. But some of Enron's creditors may have trouble doing that because these and other Wall Street firms played a critical role in structuring and financing many of Enron's off-balance sheet deals.

The Batson report, however, may prove most useful to Enron's beleaguered shareholders, who are pursuing civil securities fraud claims against Enron's deep-pocketed bankers.