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Tax Scofflaws Get Millions In Contract Awards From IRS

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Ethan Barton Managing Editor

Corporations that owed back taxes illegally received nearly $19 million from contracts with the Internal Revenue Service in 2012 and 2013, a government watchdog reported Wednesday.

The IRS is prohibited from contracting with corporations that owe the government taxes, but that didn’t stop the agency from awarding 17 delinquent companies $18.8 million for 57 contracts, according to a Treasury Inspector General for Tax Administration report.

“Federal contractors who abuse the tax system cause significant loss of tax revenue, while at the same time benefitting from taxes paid by compliant individuals and corporations,” the report said. “When the IRS conducts business with contractors that do not pay their federal taxes, it conveys a conflicting message in relation to its mission to ensure compliance with tax laws.”

One corporation also received three contracts worth more than $67,000 even though it had a felony conviction.

The Consolidated Appropriations Act of 2012 “prohibited the IRS from using appropriated funds to enter into a contract with a corporation that has certain federal tax debt and/or felony convictions,” the report said.

IRS officials told the inspector general they either didn’t remember receiving the guidance the Department of the Treasury issued on Feb. 2, 2012, regarding the new law, or they didn’t understand it “because they received no training on these new requirements.”

In any case, “TIGTA found that the IRS did not have effective controls in place to prevent the award of contracts to corporations with certain federal tax debt and/or felony convictions,” the report said.

Investigators estimated that the IRS didn’t require corporations to report tax debt or felony convictions for 94 percent of all awarded contracts. In fact, the IRS doesn’t have a definition for federal tax debt and doesn’t proactively check to ensure prospective contractors are in compliance with appropriation law, investigators found.

“As a result, [contracting officers] had no basis to determine whether or not contract awards were being made in compliance” with the law, the report said.

TIGTA and the Government Accountability Office have previously “reported that thousands of contractors have abused the federal tax system,” the report said.

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