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Treasury Inspector General for Tax Administration

Press Release

January 10, 2011
TIGTA - 2011-3
Contact: Karen Kraushaar
(202) 622-6500

IRS Contractors Owe Back Taxes, TIGTA Finds

WASHINGTON – The Internal Revenue Service (IRS) does not annually verify that government contractors have paid Federal taxes, despite a presidential directive that contractors with serious tax delinquencies not receive new work from Federal agencies, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

On January 20, 2010, President Obama directed the IRS to review whether contractors bidding for Federal contracts owed Federal taxes. TIGTA reviewed whether businesses contracting to provide services to the IRS were compliant with Federal tax laws, including filing and paying Federal income taxes.

TIGTA determined that Federal guidelines prevent the IRS from using tax-indebtedness information to preclude a contractor from obtaining a contract. Those guidelines permit the IRS to conduct tax checks only at the time of the initial award to determine whether tax-indebtedness exists and if it indicates serious issues that could jeopardize contract performance.

In addition, Federal Government guidelines do not require the IRS to complete tax checks when contracts are being considered for renewal. Therefore, annual tax checks are not performed. As a result, contractors that may have become delinquent or noncompliant since the initial award date can continue to receive Federal payments without being subject to additional tax checks.

TIGTA’s review of 135 current IRS contactors identified 20 (15 percent) with delinquent tax liabilities and penalties totaling approximately $5.2 million. Six of these contractors had delinquent tax liabilities totaling approximately $943,000 when they were awarded the contracts. In addition, tax checks were not completed for seven of the 20 contractors. The contracts were awarded between October 2006 and December 2008.

“In accordance with the presidential directive, the Internal Revenue Service must ensure that businesses contracting to provide services to the IRS are compliant with Federal tax laws,” said J. Russell George, the Treasury Inspector General for Tax Administration. “IRS contractors should be held accountable to the same tax compliance requirements as IRS employees.”

TIGTA recommended that the IRS:

IRS management agreed with the recommendation to evaluate the contract award process and to ensure tax checks and financial capability surveys are done before contracts are awarded. In addition, the IRS plans to include tax-check responsibilities in future employee training. The IRS disagreed with TIGTA’s recommendation to establish procedures to conduct annual tax checks on all contractors to identify subsequent tax delinquencies.

To view the report, including the scope, methodology, and full IRS response, go to: http://www.treas.gov/tigta/auditreports/2010reports/201030120fr.pdf.


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