IRS Paid $18.8 Million to Contractors With Unpaid Back Taxes

June 24, 2015

The IRS granted 57 contracts worth $18.8 million to corporations with unpaid back taxes from 2012 to 2013, according to a March 26 Treasury Inspector General for Tax Administration (TIGTA) report.

"Awarding contracts to corporations with federal tax debt conveys a contradictory message in relation to the IRS’s mission to ensure compliance with the tax laws," the report said.

TIGTA found the IRS granted 17 corporations these lucrative contracts over the two year period despite a federal ban on the IRS contracting corporations with tax debts.

The Consolidated Appropriations Act of 2012 also prohibits agencies including the IRS from granting contracts to corporations convicted of a felony within the past 24 months. According to the report, the IRS also violated this provision.

"The Recovery Operation Center determined that the IRS awarded three contracts worth more than $67,000 to one corporation with a felony conviction," the report said.

TIGTA made four recommendations to the IRS at the conclusion of its report: Update IRS procurement policies, require contractors to disclose back taxes and felony convictions, require prospective contractors to provide self-certification, and define unpaid federal tax liability.

"We are committed to ensuring that the IRS complies with all regulatory guidance and take this matter seriously," Kevin Q. McIver, acting chief of the IRS’ agency-wide shared services, said in a response to the report.

While McIver agreed with two of TIGTA’s recommendations and partially agreed with the other two recommendations, he took exception to parts of TIGTA’s analysis.

"By including the 32 modifications within TIGTA's calculation, we feel TIGTA improperly interpreted the 2012 and 2013 policies on this matter.  The policies were clear in that they only applied to new solicitations.  A proper analysis shows the identification of 25 new awards valued at less than $900,000."

The report highlighted the damage contracting with corporations that have tax debts can cause.

"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.