Thursday, September 1, 2016

Screening Contractors with Unpaid Federal Tax Liabilities

Back in 2010, the White House noted in a memorandum to Executive Agencies that Government contracts were being awarded to "thousands of companies" with serious tax delinquencies. The total amount of unpaid taxes owed by these companies was estimated to be more than $5 billion at the time.

Since then, through directives and various authorization/appropriations acts, Agencies have tried to crack down on awards of contracts to firms with unpaid tax liabilities. In most cases, contractors must self-certify that they have no unpaid delinquent tax liabilities. The Department of Defense, for example, implemented this requirement in its FAR Supplement, DFARS 252.209-7991.

Well, how's it been working? We can tell you how the prohibition has not been working at the IRS.

The Treasury Inspector General for Tax Administration (TIGTA) recently issued its findings from an audit to determine whether contracting officers are completing the required tax checks to ensure that contractors with serious delinquencies do nbot receive taxpayer funds through contracts with the IRS.

The TIGTA found that IRS contracting officers were 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 the regulations.

TIGTA reviewed 73 contract awards from a population of 336 contracts greater than $250 thousand that were awarded during a two-year period ending in August 2014. The auditors found that 21 of the 73 contract awards (29 percent) did not have evidence that the contracting officer performed the required tax check on the winning bidders. Even worse, in all 73 awards, there was no evidence that the other qualified bidders for the work underwent a tax check, as required.

The audit found several systemic problems. For example, tax check results did not contain sufficient information to enable contracting officers to support their responsibility determinations. Additionally, 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 thousand, leaving thousands of contracts at risk for violating the regulations.

The IRS undoubtedly has it easier than other Executive Agencies in identifying tax deadbeats. Other agencies must rely on self-certifications of prospective contractors. But that could change.

You can read the entire audit report here.

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