WASHINGTON — Two former Levi Strauss & Co. executives, who have a pending lawsuit against the jeans firm for what they claim was their wrongful firing, joined a panel of Senate witnesses Tuesday to testify about corporations allegedly avoiding federal taxes through questionable accounting or inventive tax shelters.

The Senate Finance Committee is conducting an inquiry into the state of corporate tax shelters, after delving into the issue two years ago when the Enron accounting scandal erupted.

“It’s a constant effort to fight these shelters,” said committee chairman Charles Grassley (R., Iowa), who said tax-shelter legislation would be forthcoming.

The former Levi’s workers, Robert Schmidt and Thomas Walsh, and a KPMG employee placed on administrative leave by the accounting firm, were cast at the hearing as “whistle blowers” whose questions about tax practices were allegedly ignored by their superiors. Schmidt and Walsh were fired in December 2002 and filed suit against Levi’s in April charging unlawful termination.

Schmidt, a tax attorney, testified that his superiors allegedly declined to disclose to the IRS pertinent information involving a Levi’s partnership in Brazil, part of a broader IRS audit for 1999.

Schmidt and Walsh are alleging in California Superior Court in San Francisco that they were fired for refusing to keep financial records from tax authorities and auditors.

“We had the obligation to hand the information to the IRS,” Schmidt said.

Former Levi’s tax attorney Walsh testified to accounting that he charged was “deeply troubling to me” regarding the company’s tax reserves and use of foreign tax credits.

Levi’s officials were not invited to testify, but were told by the committee they could submit in writing their views on the tax issue. Contacted at Levi’s headquarters in San Francisco, a spokeswoman said of Schmidt and Walsh. “Their comments this morning were just a repeat of false allegations they had already made against the company…They are disgruntled former employees.”

The spokeswoman also noted, as reported, that a recent independent audit of Levi’s tax practices found they are “reasonable, legally defendable and don’t constitute tax fraud.”

At the hearing, committee member Jim Bunning (R., Ky), questioned panelists whether corporate tax shelters are only “corporations looking at the tax code and using the tax code as its written” in order to save money.One such legal tax shelter being scrutinized by the panel is the apparent common and legal practice of lease arrangements between U.S. investors and foreign public works, such as water authorities.

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