National Association of Government Contractors


Agencies to Identify Contractors With Tax Debt

It is believed, that a sizable portion of the "tax gap" of revenues that go uncollected by the Internal Revenue Service is attributable to current and would-be federal contractors.
 
Though the IRS is prohibited from sharing such information with agency procurement staff, contracting officers are supposed to examine the self-reporting of tax debts from the companies to which they give awards. That is not always occurring, according to a recent Government Accountability Office report addressed to leaders of the House Oversight and Reform and the Ways and Means committees.
 
"Considering prospective contractors' reported qualifying federal tax debt--in accordance with federal regulations--helps ensure federal agencies comply with federal appropriations law, supports the integrity of the contracting process, and protects the interests of the government," GAO noted in its summary of a two-year review of five agencies' handling of selected contracts in fiscal 2015-2016.
 
The Energy, Health and Human Services, and Veterans Affairs departments, along with procurement staff with the Army and Navy, awarded 1,849 agreements to contractors that reported qualifying federal tax debts (delinquent debts over $3,500), GAO found.
 
And though all the agencies had policies, procedures and training designed to identify firms that owe money, "these controls were not always effective in ensuring that potentially required actions were taken," auditors found. Contracting officers are supposed to take actions including notifying the agency's suspension and debarment official of problems, but the suspension officials "at all five agencies told GAO they did not receive any notifications of contractors reporting tax debt in this period," the report said. "As a result, these contracts may have been awarded without potential required actions, indicating potential violations of federal regulations and, in some cases, appropriations law."
 
GAO analyzed Federal Procurement Data System-NG entries from companies in the governmentwide System for Award Management (administered by the General Services Administration) and stressed the importance of the companies keeping their 54-item annual registration entries accurate and up-to-date, including whether they have unpaid taxes.
 
"Improving accessibility of SAM representation and certification data to allow contracting officers to more easily identify and consider reported qualifying federal tax debt before contract award can help contracting officers meet required steps," the report said.
 
"Agencies cannot independently verify the accuracy of contractors' reported qualifying federal tax debts when awarding contracts," GAO acknowledged. "This limitation heightens the importance of the IRS's levy process for recouping revenue from businesses that have failed to pay their taxes in a timely way but are receiving federal contract dollars."
 
Auditors made 12 recommendations customized to each of the five agencies, and to both the IRS and GSA, for enhancing controls to ease consideration of contractor tax debts.
 
All the agencies agreed with the recommendations, with the Defense Department, HHS, Veterans Affairs and Energy are all planning a second look at the contracts GAO identified as problematic. 



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