tax delinquency | The Contracting Education Academy

October 26, 2011 By AMK

Obama opposes ban on contracts with tax-delinquent contractors

Obama administration officials are concerned that a Senate appropriations bill would hinder agencies’ ability to make informed decisions about contracting with tax-delinquent companies.

The administration agrees that a provision in the Senate’s fiscal 2012 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act (H.R. 2112) combats waste and fraud in the government marketplace. However, officials warn that the bill, as it reads currently, would hurt contracting decisions.

Like a version recently passed by the House, the Senate bill would prohibit agencies from awarding contracts to companies with unpaid federal taxes. But the Senate version would go further by barring the award of a contract or grant worth more than $5 million if a company cannot certify it has paid its taxes in the last three years or has not been convicted of a tax-related crime. A company cannot even have received a notice of an unpaid tax assessment in the previous three months, unless it’s being paid off.

“As written, the provision would deny agencies the ability to make informed decisions about contracts, grants, and other federal assistance,” according to an Oct. 17 statement of administration policy. “It thus risks causing unintended consequences that could translate into unwarranted penalties on businesses and unjustified costs on taxpayers.”

In 2010, President Barack Obama moved against contractors who don’t pay their taxes. He called on officials at Treasury Department, IRS, and the Office of Management and Budget to find ways to share more information across departmental lines to keep tax delinquents out of the federal marketplace. This summer the president launched the Campaign to Cut Waste, led by the vice president, which coincides with the emphasis on doing business with contractors of good standing.

Tax delinquent contractors are a problem. In May, the Government Accountability Office reported that at least 3,700 federal contractors that received economic stimulus law funds owe $757 million in unpaid federal taxes.

The Senate has been considering the bill, but has not passed it yet. The House passed its version in June.

About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Washington Technology. Published Oct. 24, 2011 at http://washingtontechnology.com/articles/2011/10/24/senate-appropriations-bill-tax-delinquent-contractors-obama.aspx?s=wtdaily_251011.

August 19, 2011 By AMK

Pentagon faulted for not collecting contractor debts

The Defense Department has allowed delinquent contractors to avoid paying as much as $209 million owed the government, according to a letter released on Monday by four senators.

The bipartisan group, whose members serve on the Homeland Security and Governmental Affairs Committee, asked the Pentagon for a current inventory of contractor accounts receivable and pending contractor debt in dollar amounts from fiscal 2005 through fiscal 2010.

“In these times of ever shrinking budgets, a soaring deficit and disturbingly high levels of wasteful spending across the federal government, the Department of Defense must do all it can to get its fiscal house in order,” said Sen. Tom Carper, D-Del., chairman of the Subcommittee on Federal Financial Management, in the letter to Teresa McKay, director of the Defense Finance and Accounting Service. “The department’s poor bookkeeping can mean that delinquent contractors who owe the government money might actually still be receiving payments from the government.”

Sen. Scott Brown, R-Mass., who joined in signing the letter with Sens. Tom Coburn, R-Okla., and Claire McCaskill, D-Mo., said Defense Secretary Leon Panetta in his July confirmation hearing “assured Congress that improvement in this area is a priority for the department going forward. His commitment should be supported by real action to show that DoD is making progress toward finally getting its financial house in order.”

The senators based their charges of poor financial management on a July 15 Defense inspector general report titled “Defense Finance and Accounting Service Needs More Effective Controls Over Managing Contractor Debt.”

It found that DFAS management “did not have controls for recording contractor identification information and did not have effective controls for tracking contractor debts.” Specifically, it said DFAS personnel lacked taxpayer identification numbers sand commercial and government entity codes for many of the contractor debt transactions the auditors sampled. Nor did they have the required documentation supporting the appropriation, line of accounting, original principal, or delinquent age attributes for many of the transactions. They also “did not properly record or track contractor debt,” resulting in total uncollected debt for fiscal 2009 at $209.3 million.

In addition, the senators cited the Government Accountability Office’s ongoing policy of keeping the Pentagon’s financial management programs on its high-risk list. “Over the years, DoD has initiated numerous efforts to improve the department’s financial management operations and achieve an unqualified (clean) opinion on the reliability of its reported financial information,” GAO said in a July report. “These efforts have fallen short of sustained improvement in financial management or financial statement auditability.”

In addition to the inventory of outstanding debts, the senators asked for “the number of debts and dollar amounts referred to the Department of the Treasury or the Department of Justice for collection, including specific amounts referred to the Treasury Offset Program and amounts referred for litigation, as well as any other collection programs.”

Defense did not respond before publication to requests for comment.

Winslow Wheeler, director of the Straus Military Reform Project at the Center for Defense Information, called the letter “a useful but small step.

“Given the chaos and inscrutability of almost all DoD transactions,” he said in an email to Government Executive, “I cannot help but ask why members of Congress are not sending letters like this on other financial black holes — such as the amount of overhead that Lockheed Martin charges for the F-35 and what exactly is that money truly spent on — every single day.”

— by Charles S. Clark – Government Executive – August 15, 2011 at http://www.govexec.com/story_page.cfm?articleid=48549&dcn=e_gvet

March 21, 2011 By AMK

Tax delinquency no impediment to contracts with IRS

File this one with the government’s irony department.

The Internal Revenue Service and other federal agencies paid nearly a dozen federal contractors almost $3.7 billion in procurement awards, despite the fact the companies owe millions in back taxes, according to a new report by the Treasury Inspector General for Tax Administration.

In every case, the IRS failed to take enforcement actions because the contractor was disputing the tax liability. It took the IRS an average of eight months — and in some instances as long as 22 months — to determine whether the information provided by the company was enough to adjust the outstanding balance, TIGTA said in a report dated Feb. 4 but released on Monday.

While the IRS was reviewing the contractors’ accounts, collection efforts were suspended and the firms received contract payments of $356 million from the IRS and $3.6 billion from other government agencies, the report found. If the accounts had not been blocked, the treasury would have received more than $3.7 million in taxes from the firms.

“All federal contractors, and particularly those that do business with the IRS, must meet their obligations to pay federal taxes,” said J. Russell George, the Treasury Inspector General for Tax Administration. “Although the IRS has the responsibility to investigate the merit of a taxpayer’s claim before initiating enforced collection activity, it should improve its practices to expedite the timely resolution of federal contractor accounts that are in dispute.”

According to IRS procurement data, of the 535 companies with contracts at the agency, 61– or more than 11 percent — had delinquent federal tax accounts totaling some $10.6 million. Most of these companies are receiving reminder notices, are in litigation, or are working with the IRS to resolve the delinquency through a payment solution, TIGTA said.

The report identified eight contractors, however, with delinquent taxes totaling $4.2 million that were challenging the IRS assessments and were therefore blocked from inclusion in the Federal Payment Levy Program. The automated program collects delinquent federal taxes by issuing levies of up to 15 percent on a variety of federal payments, including contract awards.

From fiscal 2000 through 2009, nearly $2.4 billion was levied on behalf of the IRS and about $430 million was imposed on delinquent federal contractors.

Although a delinquent tax case can indicate the existence of serious issues that can jeopardize contract performance, it alone rarely precludes a company from winning a contract, George said.

The IG recommended the IRS expedite its review of federal contractor cases in a blocked status. “TIGTA believes the IRS could improve the timeliness of these cases by taking a more active enforcement approach to suspend payments to contractors if they are not making attempts to resolve their tax liability within a reasonable time period,” the report said.

The IRS agreed with TIGTA’s recommendations, but noted it has a responsibility to investigate companies’ claims before beginning collection actions.

“If the IRS determines that the underlying tax assessment is accurate, the taxpayer’s account is adjusted to the correct amount,” wrote Christopher Wagner, commissioner of the small business/self-employed division at the IRS. “If the IRS denies the taxpayer’s claim, the account is returned to the collection stream for appropriate action.”

In January 2010, President Obama issued a governmentwide memorandum directing the IRS commissioner to review the certifications that firms bidding on federal contracts submit to demonstrate they are up-to-date on their taxes. The memo also required the Office of Management and Budget director to issue recommendations on ensuring tax delinquent contractors are not awarded new contracts, and to develop plans to make contractor tax certifications available in a governmentwide procurement database.

Earlier this month, Rep. Jason Chaffetz, R-Utah, introduced a pair of bills that would prevent contractors and federal employees with “seriously delinquent” tax debt from working for the government.

— by Robert Brodsky – GovExec.com – March 14, 2011

January 10, 2011 By AMK

Report finds IRS does business with tax delinquents

The Internal Revenue Service in recent years has awarded contracts to at least 20 companies with delinquent taxes totaling $5.2 million, according to a new watchdog report.

The Treasury Inspector General for Tax Administration found IRS procurement officials often fail to verify if agency contractors have paid federal corporate and payroll taxes. And, even when officials discover the tax delinquencies, a loophole in federal acquisition law prevents the IRS from terminating the contract, the report said.

“Although IRS contractors are not considered employees, they are conducting business and doing work on behalf of the agency whose mission is to ensure taxpayers meet their tax responsibilities,” Inspector General J. Russell George wrote. “As a result, we believe IRS contractors should be held to the same ethical standards as IRS employees and paid preparers concerning their compliance with the nation’s tax laws.”

The IG reviewed 135 current IRS contactors with awards of at least $250,000 issued between October 2006 and December 2008, and determined that 20 of the firms owed federal taxes. Six of the companies had delinquent tax liabilities totaling $943,000 when they first won the contracts. As of March 2009, the amount the six companies owed had increased to $4.9 million.

In 13 cases, an IRS contracting official conducted a tax check, as required by federal acquisition law. But the reviews shed relatively little light on the significance of the tax liabilities, failing to distinguish the type of taxes owed, the age of the debt, or if the contractors had established a plan to repay the funds.

IRS procurement officials failed to conduct a tax check for the seven other firms. But, it’s unclear whether the checks would have prevented the businesses from winning the awards. Federal guidelines bar the IRS from using tax-indebtedness to exclude a company from obtaining a contract. Regulations permit the agency to verify a bidder’s tax record only at the time of the initial award to determine if the debt could jeopardize the performance of the contract.

Federal acquisition guidelines also do not require the IRS to conduct a tax check when contracts are being considered for renewal, allowing companies to continue receiving federal payments without having to answer for their debt, the IG said. The IRS renewed the contracts of 17 of the 20 companies with delinquencies.

IRS employees, meanwhile, face disciplinary action, including termination, if they fail to file accurate and timely income taxes.

“If the IRS continues to conduct business with contractors that do not comply with the nation’s tax laws, an adverse message will be sent to the American taxpayers as to the fairness of the tax administration system,” George wrote. The problems TIGTA identified are not new in federal contracting. In February 2004, the Government Accountability Office reported that about 27,000 Defense Department contractors owed nearly $3 billion in federal taxes. In June 2005, an audit of 33,000 civilian agency contractors identified $3.3 billion in delinquent federal taxes. And, in March 2006, GAO found that 3,800 General Services Administration contractors owed $1.4 billion in federal taxes.

A 2009 bill that former Rep. Brad Ellsworth, D-Ind., sponsored would have prevented any company with “a seriously delinquent tax debt” from winning a government contract or grant. The legislation cleared the House, but not the Senate.

The IG recommended the IRS ensure that all required tax checks are conducted before contracts are awarded and that senior agency executives meet and review Obama’s 2010 memorandum. The IRS concurred with those recommendations but disagreed with another IG suggestion that would require an annual tax check on all IRS contractors.

David Grant, chief of agencywide shared services at the IRS, wrote in his response that there is no justification in federal law or regulation for annual tax verifications. “A tax check is cursory,” Grant wrote. “Unverified that is not actionable as the contractor has had no due process in regard to the tax check information and the tax liability has not been finally determined.”

– by Robert Brodsky – GovExec.com – January 10, 2011

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