Office of Audit


SIGNIFICANT Improvements are needed in THE contractor tax check process

Final Report issued on July 20, 2016

Highlights of Reference Number:  2016-10-049 to the Internal Revenue Service Chief Financial Officer and Chief Procurement Officer.


Since Fiscal Year 2012, annual appropriation acts have prohibited, with limited exceptions, the IRS from making contract awards to corporations with unpaid Federal tax liabilities.  TIGTA has reported previously that the IRS does not effectively screen its contractors for delinquent Federal taxes.  As a result, the IRS has been unable to systematically prevent contractors that have not met their Federal tax responsibilities from receiving Federal contract dollars.


This audit was initiated to determine whether contracting officers are completing the required tax checks to ensure that contractors with serious delinquencies do not receive taxpayer funds through contracts with the IRS.


The IRS tax check process was not effective in identifying tax delinquent contractors.  As a result, the IRS remains at risk of awarding contracts to entities that are not in compliance with tax law.  Current IRS policy requires a tax check for all bidders in the competitive range of solicitations greater than $250,000.  TIGTA reviewed a statistical sample of 73 contract awards from a population of 336 contracts of $250,000 or more awarded during the period September 2012 through August 2014, and found that 21 (29 percent) of the 73 contract awards reviewed did not have evidence that the contracting officer performed the required tax check on the winning bidders.  **************************************************1*******************************************************  In all 73 contracts (100 percent), there was no evidence that the other qualified bidders underwent a tax check, as required.

Several factors need to be addressed for the IRS to have an effective tax check process.  For example, tax check results did not contain sufficient information to enable contracting officers to support their responsibility determinations.  In addition, policies did not give contracting officers the ability to communicate tax check results to the affected contractor using consent processes when tax check results indicated tax debt.  Finally, tax checks were only performed for solicitations greater than $250,000.  As such, contracting officers could inadvertently violate the conditions placed upon the expenditure of appropriated funds.

The Office of the Chief Financial Officer has undertaken efforts to revise and automate the tax check process and has developed criteria to identify contractors prohibited from receiving contracts as outlined in the Federal appropriations law and the Federal Acquisition Regulation.  However, the Office of Procurement revision of its tax check policies and procedures had not occurred as of March 2016.


TIGTA recommended that the Chief Financial Officer ensure that information provided to contracting officers in tax check results contains information necessary to determine whether the contractor is prohibited from receiving contract awards under Federal appropriations law.  TIGTA also made several recommendations to the Chief Procurement Officer to improve the policies and processes that support contracting officer actions related to tax checks.

In their response, IRS management agreed with our recommendations.  The IRS has developed a database that automatically identifies tax indebtedness status for contracting officer use in determining contractor eligibility for awards.  In addition, a Notice and Consent provision has been drafted to include in all solicitations to advise prospective contractors that a tax check will be conducted prior to contract award.  This notice will be published in the Federal register.



To view the report, including the scope, methodology, and full IRS response, go to:


Redaction Legend:

1 = Tax Return/Return Information


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