M E M O R A N D U M
To: Reporters and Editors
Fr: Jill Gerber for Sen. Grassley, 202/224-6522
Re: GAO report on tax-owing stimulus contractors
Da: Tuesday, May 24, 2011
Billions of dollars in stimulus funds went to contractors and grantees who owed the government hundreds of millions of dollars in tax debts, according to a new report from the Government Accountability Office. Sen. Chuck Grassley, a requester of the report, made the following comment on the report, which is the subject of a hearing today of the Senate Permanent Subcommittee on Investigations. Grassley is a senior member and former chairman and ranking member of the Finance Committee, with jurisdiction over tax policy.
“Many companies pay their taxes, so there’s no reason for the government to deal with companies that don’t. The businesses that should be excluded first from government business are those that have tax debts outstanding over several years and haven’t done anything to try to pay off the debt. A substantial amount of the estimated unpaid federal taxes owed by stimulus program contractors are in this category. A government contract is something to be earned, not something to be taken for granted. The Administration has at least two rules in place to address this problem, but it’s not clear whether the rules are being used. This problem has come up before. Congress needs to figure out how to fix it. The Senate Finance Committee has considered this. It’s good that the committee with jurisdiction over government contracts is looking at it, too.”
The full report is available here.
Here is a summary of the report from the Senate Permanent Subcommittee on Investigations:
REPORT FINDINGS
Of the 63,000 contractors and grantees examined, 3,700 were found to owe $757 million in back taxes, but also received $24 billion in stimulus awards. This represents 5.9% of all awardees that GAO analyzed.
If all 80,000 awardees were examined and the same proportion held, 4,500 awardees owing $909 million would have received $29 billion in contracts. That would represent more than 10% of all stimulus money designated for contracts and grants ($275 billion).
The GAO study identified 15 cases of individual contractors or grantees involving “abusive or potentially criminal activity” and has referred those cases to the IRS for further investigation. GAO indicated that those 15 cases represent only a small number of the cases that it could have referred.
Although a federal levy program is in place to catch tax cheats that get federal payments, many awardees escaped this review because money was disbursed at the State and local level or by a prime contractor.
Approximately 35% of all unpaid taxes were for old debts incurred prior to 2003, indicating that many of the awardees were known tax cheats, and not persons with new debts.
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%)
GAO uncovered several specific examples that were particularly egregious:
• One construction firm owed nearly $400,000 in back taxes, but received a contract worth more than $1 million.
• One engineering services firm had a $6 million delinquent tax debt and was called by the IRS an “extreme case of noncompliance.” It got a stimulus contract worth over $100,000.
• One security firm owed $9 million and was repeatedly cited not only for being uncooperative with the IRS, but also had frequent labor violations. It received a stimulus contract worth more than $100,000.
• One non-profit organization owed more than $2 million from years of unpaid payroll taxes, while at the same time its CEO made numerous trips to a casino. This organization received more than $1 million in stimulus funds.