Updated May 27, 2011
In an investigation of 63,000 government contractors and grantees who got over $24 billion in economic stimulus Recovery Act money, the Government Accountability Office (GAO) found that 3,700 (5.9%) owe the government a combined $757 million in delinquent taxes.
The Recovery Act appropriated $275 billion to be distributed for federal contracts, grants, and loans in an attempt to reverse the recession. As of March, 25, 2011, about $191 billion of that amount had been paid out, according to the GAO.
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In total, about 80,000 contractors and grantees received contracts and awards paid for with stimulus program funds. Based on its investigation, the GAO projected that as much as $909 million may have been improperly awarded to entities that owed back taxes.
Many Were Known Tax Cheats
GOA determined that about 35% of all the unpaid tax debts were incurred in the early 2000s and were already being pursued by the IRS. Despite being known tax cheats, the contractors and awardees received stimulus funds, noted the GAO.
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Federal law does not currently prohibit government agencies from awarding contracts or grants to entities because they owe federal taxes. In fact, the IRS is not even allowed to disclose tax delinquency information to the federal agencies without the taxpayer's permission. The GAO says this needs to change.
"As far back as 1992, we have said that Congress should consider whether tax compliance should be a prerequisite for receiving a federal contract," GAO wrote.
Details of the Unpaid Taxes
According to the GAO investigation, the bulk of tax debts were from unpaid corporate and payroll taxes.
- Unpaid corporate taxes - $417 million (55%)
- Unpaid payroll taxes - $207 million (27%)
- Other unpaid taxes - $133 million (18%)
A few particularly egregious cases cited by the GAO included:
- A construction firm that received a contract worth more than $1 million despite owing nearly $400,000 in back taxes.
- An engineering services firm had a $6 million delinquent tax debt and was called by the IRS an "extreme case of noncompliance" but still got a stimulus contract worth over $100,000.
- A security firm that not only owed $9 million in back taxes, had been called "uncooperative" by the IRS and had racked up several labor law violations still got a Recovery Act stimulus contract worth more than $100,000.
- A "non-profit" organization that owed more than $2 million in unpaid payroll taxes while the CEO made numerous trips to a casino, but managed to get more than $1 million in Recovery Act stimulus funds.
Calls for Executive Branch Action
On May 23, 2011, the Senate Permanent Subcommittee on Investigations, chaired by Sen. Tom Coburn (R-Oklahoma) held a hearing to consider the GAO report.
"It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else," said Sen. Coburn in a press release. "That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress."
"For many years now, we've known that a small percentage of federal contractors and grantees who get paid with taxpayer dollars shirk their responsibility to pay their taxes," added Sen. Carl Levin (D-Michigan). "We've strengthened the levy program to recover more funds from them, and the executive branch has made it clear nonpayment of tax can be grounds for denying a specific contract or debarring a contractor from bidding on any contract. Now the executive branch should get on with it and actually debar the worst of the tax cheats from the contractor workforce."