GAO: Stimulus contractors owe millions in back taxes

Monday - 5/23/2011, 6:11pm EDT

By Jolie Lee
Federal News Radio

A Government Accountability Office report released Tuesday finds contractors who received stimulus funds have more than $757 million in back taxes.

Senators from the Senate Permanent Subcommittee on Investigations are calling for a hearing on the report's findings.

"It is a matter of basic fairness that those who take government money should be required to pay their taxes like everyone else. That such a huge amount of the stimulus money went to known tax cheats should be a wake-up call for Congress," said subcommittee ranking member Sen. Tom Coburn (R-Okla.) in an emailed statement on Monday.

According to a release from Coburn, the GAO report finds 3,700 contractors who received stimulus funds owed taxes. This represents nearly 6 percent of the 63,000 stimulus contractors that GAO examined. These tax-owing contractors received $24 billion in stimulus awards. In all, 80,000 contractors received stimulus funding.

Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it "an extreme case of noncompliance." A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million.

The GAO report found 15 cases of "abusive or potentially criminal activity" and has referred those cases to the IRS, according to Coburn's release.

About 35 percent of all unpaid taxes were for debts prior to 2003, according to the release.

Office of Management and Budget spokeswoman Moira Mack said the administration is confident its investigations are preventing more tax delinquents.

"Companies that want federal contracts are now required to certify whether they have a significant tax delinquency and that requirement is deterring tax delinquents from getting federal contracts. These efforts are consistent with the steps this administration has taken throughout the Recovery Act to provide an unprecedented level of accountability and transparency on behalf of the American taxpayer," Mack said in an emailed statement on Monday.

The subcommittee hearing on Tuesday will examine possible solutions and the need for legislation to prevent further tax debts from federal grantees.

Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. While the federal government requires contractors to present documentation that their taxes are paid, some recipients escaped federal review because the money was disbursed at state or local levels.

Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it's been known for years that a few federal contractors and grantees don't pay their taxes.

He said a program to recover funds from tax delinquents has been strengthened, and "the executive branch has made it clear" that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should "get on with it" and bar "the worst of the tax cheats from the contractor workforce."

"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. Tom Coburn of Oklahoma, the panel's top Republican. "That such a huge amount of the stimulus money went to known tax cheats should be a wakeup call for Congress.'"

The stimulus package, enacted in February 2009, funneled some $821 billion into the recession-hit economy. Of that, about $275 billion was designated for contracts and grants, of which nearly $200 billion had been paid out as of March 25, 2011.

The report noted that about 35 percent of the unpaid taxes were for debts incurred prior to 2003 and that more than half of the apparent violations, $417 million, were from unpaid corporate taxes. Another quarter, $207 million, came from unpaid payroll taxes.

The most serious documented case was a security firm that owed $9 million, mainly in unpaid payroll taxes from the mid-2000s. IRS records indicated that the company paid other creditors while shirking its tax obligations. The company, which received more than $100,000 in stimulus money, had a history of being uncooperative, missing deadlines and repeatedly filing appeals, according to the records.

Sen. Max Baucus, D-Mont., chairman of the Finance Committee, said every unpaid tax dollar was "added to our deficit or taken from future generations, so I will certainly use the conclusions from this report to look for new ways to ensure everyone pays their fair share."

For Republicans the report provided another way to criticize Obama's recovery package. "This shows how fundamentally flawed the failed stimulus has turned out to be when Washington jams through almost a trillion dollars in spending with little scrutiny," said Sen. Orrin Hatch of Utah, top Republican on the Senate Finance Committee.