Nortel finance execs caught up in tax fight

Nortel Networks Corp. has asked a bankruptcy judge to shield two of its finance executives--one current, one former--from the state of Michigan, which says the state Treasury's owed $1.7 million and someone's going to pay.

In a filing Friday with the U.S. Bankruptcy Court in Wilmington, Del., Nortel asked a judge to enjoin the state from trying to collect taxes during the bankruptcy case. Nortel also wants the bankruptcy court to issue a ruling that its executives can't personally be held liable for the unpaid bills.

A spokeswoman for Michigan Attorney General Bill Schuette declined comment on the Nortel tax dispute Monday, citing active litigation.

The tax tiff is not the biggest-ticket item in the bankruptcy of the telecommunications company, which is now in its fourth year. Long out of business, Nortel in the U.S. is sitting on more than $1 billion of its own cash and is angling for a share of $7.3 billion in proceeds from Nortel's global liquidation.

But the dispute highlights the perils of corporate tax trouble for executives who hold the pursestrings of companies that are circling the drain.

It's especially perilous in Michigan, a state that has seen perhaps more than its fair share of collapsed businesses and heard more than its share of excuses, said Stephen Dunn, an attorney who hands civil tax disputes for businesses. He's with Dunn Counsel PLC.

"What happens in Michigan when a business ceases operating and it owes Michigan taxes--and I mean any taxes--the taxes are assessed personally against the responsible officers," Mr. Dunn said.

"The state of Michigan is saying,'If you have the benefit of doing business in our state, if your company doesn't pay its taxes, you cannot just slip away and avoid liability,'" Mr. Dunn said.

Nortel U.S. Vice President of Finance Allen Stout and Jeff Wood, a former Nortel tax vice president who now works for Ernst & Young, got letters this year from Michigan's Treasury, the state's business tax collector. As executives with the power to say who gets paid and who doesn't, they fit the definition of responsible person, in Michigan's view.

Mr. Stout's January letter warned he could be held

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