MCI, formerly WorldCom has agreed to pay $118.2m to the state of Mississipi to settle a tax dispute.

The charge represents $100m to the State, $14m for the state's legal costs and $4.2m to a childrens charity.

The deal is subject to approval by a federal court in New York that oversaw the company's Chapter 11 bankruptcy.

Mississipi along as many as 20 other states, accused the former WorldCom of underpaying taxes prior to reorganising.

The situation arose because of payments from MCI subsidiaries to the parent company, totalling more than $20bn. The payments were royalties for "management foresight".

At the state level, the subsidiaries deducted the payments from profits. Consequently the parent company was lightly taxed in comparison.

MCI is not suing its current auditor KPMG LLP, which set up the shelter.

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