Owing back taxes isn’t enough to stop companies from being awarded millions of dollars in contracts from Uncle Sam.
Federal law bars contractors who owe back taxes from receiving government contracts, but many agencies don’t check tax databases before awarding contracts. As result, outfits with tax liens can collect millions from the very government to which they owe money.
Firms with tax liens totaling more than $112 million were awarded more than $63.8 million in contracts in the 2016 fiscal year alone, an American Media Institute investigation found.
Government watchdog groups are outraged. “This is so frustrating because there is a simple way of getting at the bad actors when it comes to contractors,” said David Williams, president of the Taxpayers Protection Alliance, a non-profit that tracks federal spending. “If you owe back taxes, you shouldn’t be getting more tax money.”
Even the Internal Revenue Service hands out government contracts to firms with unpaid taxes. VAZtech, Inc., a Baltimore-based federal contractor, was hit with a $30,000 tax lien by the IRS in May 2015. Three months later, the IRS signed a $50,000 contract with that same company.
VAZtech is one of 171 companies that won contracts with federal agencies despite tax troubles in the 2016 fiscal year. American Media Institute found the identities of the tax-distressed outfits by matching a federal contracting database against an IRS tax lien database obtained under the Freedom of Information Act.
IRS procurement officials were not blocking contractors who owed taxes from new government work, the tax service’s inspector general found. “The IRS tax check process was not effective in identifying tax delinquent contractors,” the U.S. Treasury Inspector General for Tax Administration found in a July 2016 report. “As a result, the IRS remains at risk of awarding contracts to entities that are not in compliance with tax law.”
Despite federal rules, the IRS only checks for delinquencies of more than $250,000 in owed taxes. In addition, fewer than one-third of federal contractors are even checked for tax delinquency, the tax service’s inspector general’s report said.
VAZtech officials did not respond to multiple requests for comment, and the lien remained unsatisfied as of September, a Maryland court records database shows. IRS spokesman Anthony Burke would not comment on the VAZtech situation.
The IRS promised to “develop a database that automatically identifies tax indebtedness status” for contracting officers, IRS officials said in their response to the Inspector General’s report. It may be years before such a database is ready for use.
The IRS has the easiest access to tax debt information, but it is far from the only federal agency that hired companies with tax liens.
Advanced Automation Technologies, Inc., a Largo, Maryland-based contractor, has received multiple tax liens since April 2012, for a total of nearly $350,000 in taxes, Prince George’s County (Maryland) Circuit Court records show.
But since that first lien in 2012, federal agencies – including the General Services Administration, National Institutes of Health and even the Government Accountability Office – have awarded the company some $15 million in government contracts, federal contracting database records show.
The computer consulting company, whose website’s client list consists almost exclusively of federal agencies, received nearly $5 million in contracts just this year.
The Government Accountability Office relies on the federal System for Award Management database to exclude contractors who owe taxes, said its spokesman, Charles Young. “Agencies don’t normally have access to taxpayer information, but we routinely check the listings prior to making any award decisions,” Young said in an email exchange. “They must have no exclusions or delinquent federal debt according to the System for Award Management.”
The IRS also filed a lien against MacArthur & Baker International, Inc. in 2011, saying the financial consulting firm owed nearly $50,000 in taxes.
Over the next five years, the Bethesda, Maryland-based company received more than $17.7 million in contracts from the U.S. Department of Housing and Urban Development as well as National Institutes of Health, the federal contract database shows. The lien, for taxes owed from 2006 to 2010, was eventually satisfied in July, according to Montgomery County Circuit Court records.
“Normally they should be on the debarment list and obviously they’re not,” said HUD spokesman Jereon Brown. “I can’t tell you where the mistake was made, but we will go back and review it. We would very much like companies we work with to pay their taxes.”
Responsibility for clearing contractors to work with the federal government rests with the General Services Administration.
President Barack Obama Obama issued a memorandum to department heads in 2010 requiring agencies to block contractors who owe taxes from being awarded new government work, and the General Services Administration maintains a list of barred contractors that purchasing officials are required to check before awarding a contract.
“Delinquent federal taxes in an amount that exceeds $3,500” should place a company on the list of contractors barred from new government work, the Federal Acquisition Regulation notes.
The regulations also include a series of exemptions that may allow contract awards in some cases, such as for companies that are administratively appealing their tax debt or are on a payment plan.
The IRS doesn’t make that information public, but Williams said once a lien is filed the company should be suspended from additional contracts until the tax is fully paid.
“Government contracts are a privilege, not a right,” he said.
General Services Administration spokeswomen Cara Battaglini and Ashley Nash-Hahn did not respond to repeated requests for comment on why contractors the IRS said owed taxes were not in the barred database or why the agency awarded contracts to businesses with tax liens.
None of the company representatives would provide their names but each questioned the public records showing they owed taxes.
“We’re not going to comment but the figures don’t sound right,” said an official at Advanced Automation, who declined to give her name but promised to have a representative return a call. Company representatives did not call back.
The IRS filed seven liens and obtained judgments against Advanced Automation between April 2012 and December 2015 totaling $346,499.41, court records show. All were in active status as of Sept. 9, which court employees said meant the liens weren’t satisfied.
A man at MacArthur who identified himself as Julius but declined to spell his last name said the back taxes were paid.
“All the liens were cleared up this year,” Julius said. “There are no liens against this company.”
MacArthur & Baker did satisfy the $49,050.19 tax lien on July 6 county records show, but the company had been getting government work for half a decade while owing much more than the federal regulation’s limit of $3,500 in taxes.
Some companies are divided into two entities, American Media Institute found – one that owes the tax and one that receives the contracts.
Helix Enterprises, Inc., a construction management company based in Lanham, Maryland, had a federal lien filed against it on May 11 alleging the company owed $167,014.38 in taxes, but since then Helix Management Services, also based at the same address in Lanham, received $4.1 million in contracts from the National Aeronautics and Space Administration, records show.
A man who answered the phone at the Helix companies’ address, but wouldn’t give his name, said the companies are two separate entities.
“It’s not the same company but a joint venture with another company,” he said of Helix Management.
He also said Helix Enterprises is negotiating to pay its taxes.
“We’ve paid some of the lien and are working out how to pay off the rest,” he said.
But the $167,014.38 lien against Helix Enterprises remains active, court records showed.
NASA officials are following regulations, said spokeswoman Karen Norton. The space agency awarded a contract to “Helix Management Services in December 2013 and is not aware of any tax lien for that company,” she wrote in an email in response to a request for an interview. She did not respond to an email asking if the space administration has a duty to make sure contractors are paying taxes.
It’s not rocket science for NASA and other agencies to figure out how to prevent taxpayer-funded work from going to companies that can’t or won’t pay their taxes, Williams said. “The government has chosen not to follow up on the rules,” he said. “It’s a no-brainer.”
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