GovernmentExecutive.com

About 10 percent of all contractors hired by the General Services Administration owed $1.4 billion in unpaid taxes as of last June 30, GAO officials testified Tuesday before a Senate Homeland Security and Governmental Affairs subcommittee.

In the third hearing on delinquent contractors, GAO officials told the Permanent Subcommittee on Investigations that the agency does not routinely check whether prospective contractors have tax liens against them or have failed to pay the payroll taxes they have collected from employees, which is a felony.

Some abuses were so egregious, said Permanent Subcommittee on Investigations Chairman Norm Coleman, R-Minn., they could be turned into a reality TV show called, "Lives of the Rich and Famous Tax Deadbeats."

In one of 25 most extreme cases identified by the GAO, Coleman said the agency found a contractor who was paid more than $1 million over the past two years, even though he owes more than $12 million in payroll taxes. The owner made large cash withdrawals from his company for personal use, including more than $100,000 for gambling, Coleman said.

Another GSA contractor who owed $2 million in payroll taxes bought a residential property valued at $1 million and spent $500,000 on casinos, Coleman said. In all, GAO found 3,800 GSA contractors owed unpaid corporate income, payroll, excise and unemployment taxes.

Gregory Kutz, managing director of GAO's forensic audits and special investigations unit, said it would likely take legislation to require and authorize the GSA to check government contractors for tax compliance. Steve Sebastian, director of GAO's financial management and assurance team, suggested contractors give permission for the GSA to check whether back taxed were owed as a condition of being hired.

Coleman asked Acting Deputy Director Kathleen Turco why the agency did not screen applicants for any tax abuses. Turco said that GSA checks applicants for "tax evasion" but told the panel that she would look further into whether that extended into payroll taxes.

Both Coleman and Sen. Thomas Carper, D-Del., quizzed the GAO officials and IRS Commissioner Mark Everson on the feasibility of creating a database of tax deadbeats for use by GAO and other federal agencies.

Everson said, "I don't have a problem from a tax point of view," adding "it is a procurement question" rather than an issue for the IRS. Everson said the IRS is pursuing the 25 egregious GSA cases referred by GAO as well as 97 cases referred in previous hearings on Pentagon and civilian contractors.

COMMENTS

• How can I find out who the worst offenders are? Jerry Bevino Posted May 13, 2008 1:32 PM
• Making this a procurement issue is just nuts! The IRS should do its job and collect the taxes owed just like they would from a private citizen, no questions asked. To place this burden on a procurement activity already burdened with the myriad of regulations, special programs, etc. is just a travesty. While I am making sure that contractors adequately support small business, have in place effective affirmative action programs, negotiated the best price for the government, coordinating with a host of in-house partners (policy, legal, budget) etc, etc, etc, now I have to add making sure prospective contractors pay their taxes. It's so easy to make everything a procurement issue, but procurement folks can't do it alone, nor should they be expected to. This is just dumb. GovExec.com reader Posted March 22, 2006 1:11 PM
• This article illustrates the fact that no one wants to do anything about the problem! GAO has no reason to audit the tax status of government contractors when auditing GSA! The tax payment status of contractors for GSA is not a GSA issue. Taxes are collected by the Treasury Dept and the full force of the GAO issues should be laid on the Treasury, not GSA! GSA has enough trouble with its corrupt practices and they should not be forced to face the burden of an incompetent tax collection effort of the Treasury. Likewise, the Treasury should not escape the wrath of the GAO because the GAO is incompetent in placing blame on GSA for Treasury inadequacies. This government totally is out of control and GAO is doing its best to keep it that way! Taxpayer Posted March 17, 2006 7:52 AM