Government Contractors Owed $757 Million in Back Taxes

Government Contractors Owed $757 Million in Back Taxes

by | Jun 2, 2011 | Archives

More than $24 billion in stimulus funds went to contractors and grantees who owed the government hundreds of millions of dollars in tax debts, according to a new report from the Government Accountability Office.

The GAO identified 3,700 contractors and grantees who received stimulus funds, despite collectively owing the government $757 million in back taxes. The investigative report, which came at the request of Senators Tom Coburn, R-Okla., Carl Levin, D-Mich., Charles Grassley, R-Iowa, Max Baucus, D-Mont., and Orrin Hatch, R-Utah, will be released at a hearing Tuesday of the Senate Permanent Subcommittee on Investigations.
“For many years now, we’ve known that a small percentage of federal contractors and grantees who get paid with taxpayer dollars shirk their responsibility to pay their taxes,” Levin said in a statement.  “We’ve strengthened the levy program to recover more funds from them, and the executive branch has made it clear nonpayment of tax can be grounds for denying a specific contract or debarring a contractor from bidding on any contract. Now the executive branch should get on with it and actually debar the worst of the tax cheats from the contractor workforce.”
The report found that of the 63,000 contractors and grantees examined, 3,700 were found to owe $757 million in back taxes, but also received $24 billion in stimulus awards.  This represents 5.9 percent of all the awardees that the GAO analyzed. GAO investigators noted that the findings of the investigation likely understate the full extent of the problem. The subcommittee will examine possible solutions, including the need for legislation to prevent those with known significant tax debts from obtaining federal grants and contracts.
If all 80,000 awardees were examined and the same proportion held, 4,500 awardees owing $909 million would have received $29 billion in contracts. That would represent more than 10 percent of all stimulus money designated for contracts and grants ($275 billion).
The GAO study identified 15 cases of individual contractors or grantees involving “abusive or potentially criminal activity” and has referred those cases to the IRS for further investigation.  GAO indicated that those 15 cases represent only a small number of the cases that it could have referred.
Although a federal levy program is in place to catch tax cheats that get federal payments, many awardees escaped this review because money was disbursed at the state and local level or by a prime contractor.
Approximately 35 percent of all unpaid taxes were for old debts incurred prior to 2003, indicating that many of the awardees were known tax cheats, and not persons with new debts. The bulk of the tax debts were from unpaid corporate and payroll taxes.
The GAO uncovered several specific examples that were particularly egregious. One construction firm owed nearly $400,000 in back taxes, but received a contract worth more than $1 million. One engineering services firm had a $6 million delinquent tax debt and was called by the IRS an “extreme case of noncompliance.” It got a stimulus contract worth over $100,000.
One security firm owed $9 million and was repeatedly cited not only for being uncooperative with the IRS, but also had frequent labor violations. It received a stimulus contract worth more than $100,000.
One nonprofit organization owed more than $2 million from years of unpaid payroll taxes, while at the same time its CEO made numerous trips to a casino. This organization received more than $1 million in stimulus funds.
“Many companies pay their taxes, so there’s no reason for the government to deal with companies that don’t,” said Grassley. “The businesses that should be excluded first from government business are those that have tax debts outstanding over several years and haven’t done anything to try to pay off the debt. A substantial amount of the estimated unpaid federal taxes owed by stimulus program contractors are in this category. A government contract is something to be earned, not something to be taken for granted.”
IRS May Toughen Compliance Checks before Issuing Tax Refunds

IRS May Toughen Compliance Checks before Issuing Tax Refunds

by | May 31, 2011 | Archives

Enhanced pre-refund compliance checks would enable the Internal Revenue Service to help confirm taxpayers’ identity, quickly and efficiently correct some errors with virtual certainty, and identify and audit some returns before refunds are issued, according to a new government report that fueled a debate in Congress over refundable tax credits.
The report, by the Government Accountability Office, was presented during a hearing of the House Ways and Means Subcommittee on Oversight on Wednesday. A Senate subcommittee also examined taxpayer identity theft during a separate hearing the same day.
Math error checks are among the most beneficial of these checks for both the IRS and taxpayers, the GAO noted. For example, they have the potential to deter billions of dollars in erroneous refunds, especially for refundable tax credits that have increasingly been enacted and that have resulted in significant overclaimed refunds and fraudulent claims.
Taxpayers benefit from pre-refund checks in several ways, including the fact that the IRS identifies those underclaiming benefits.
Last year the GAO reported that the IRS corrected about 7.7 million errors associated with the Making Work Pay credit, including about 60 percent in the taxpayers’ favor, meaning that taxpayers received larger refunds (or had lower taxes due) than they had anticipated.
For almost a century, Congress has been expanding the IRS’s math error authority, or MEA, on a case-by-case basis. In 2010, the GAO suggested that authorizing the use of MEA on a broader basis with appropriate controls to protect taxpayer rights could help the IRS immediately address compliance problems with newly created tax credits.
In the absence of broader MEA, from 2008 through 2011, the GAO also suggested that Congress expand MEA for more limited purposes.
Longer term, other IRS initiatives, such as matching information returns to tax returns during the filing season and leveraging new paid preparer requirements, could enhance compliance before refunds are issued. One prerequisite, however, would be a major reworking of some fundamental IRS computer systems, the GAO noted.
In 2010, the IRS processed about 137 million individual income tax returns and issued 107 million refunds totaling over $312 billion. The compliance checks it performs before refunds are issued thus could affect millions of taxpayers and billions of dollars in refunds by identifying taxpayers who overclaim or underclaim tax benefits to which they are entitled. Math error authority is just one example of the pre-refund compliance checks that IRS uses. During 2010, IRS sent taxpayers 8.4 million notices for almost 10.6 million math errors identified on their 2009 individual tax returns.
J. Russell George, the Treasury Inspector General for Tax Administration, told the subcommittee that his office had conducted a number of audits that have identified opportunities to reduce improper payments for the Earned Income Tax Credit, the Additional Child Tax Credit, the American Opportunity Tax Credit for college tuition, the Adoption Credit and other credits.
“Based on our review of the various refundable credits, we believe the IRS should require individuals to provide documentation to support eligibility for all refundable tax credits,” he said. “If such documentation is required, the IRS will also need math error authority to deny refundable credits when supporting documentation is not provided.”
However, the hearing also provided an excuse for lawmakers to trade charges over the whole issue of refundable tax credits.
“In the course of less than a decade, improper payments arising from refundable tax credits have cost taxpayers an estimated $106 billion, according to government reports,” said subcommittee chairman Charles Boustany, R-La. “To put this amount of money in perspective, it’s more than the fiscal year budgets of the Departments of Homeland Security, Justice, Treasury, and Transportation – combined. Refundable tax credits not only reduce an individual’s tax liability, they can also result in payments from the government when the credits exceed one’s tax liability; meaning that millions of Americans have been able to eliminate any income tax liability and even get a check back from the government via refundable credits. Not surprisingly, this makes them an attractive target for those willing to claim more than they are legally due or otherwise cheat the system. The problem is so widespread that the Inspector General has even found IRS employees abusing refundable tax credits.”
Democrats on the committee accused Republicans of trying to deprive middle-class families of the tax credits.
“I continue to ask, ‘Who is next?’  ‘Who else is on your list?’” said ranking member John Lewis, D-Ga. “We started the year with seniors and proposals to end Medicare.  The committee then moved to teachers and their pensions, and then to women’s health and the uninsured. And, today, the target is middle-class, working families. In 2009, the tax credits discussed today delivered almost $160 billion to more than 100 million Americans. They helped students pay for college. They helped families care for their children. They helped families adopt children. They helped millions buy homes. They helped make work pay. They helped middle-class families do just a little bit better.”
Democrats noted that in 2009, the refundable tax credits delivered almost $160 billion to more than 100 million American families.
Republicans shot back with accusations that Democrats were defending tax fraud. “Today, in a hearing examining the administration of refundable tax credits, Ways and Means Democrats refused to address the rampant waste, fraud and abuse in the current Tax Code which has led to over $100 billion in improper payments — robbing taxpayers of their hard-earned tax dollars,” they said in a press release.
Democrats followed up with their own “fact check” on votes by Republicans opposing crackdowns on wealthy taxpayers hiding their assets in Swiss bank accounts and on government contractors who hadn’t paid their taxes.

BY MICHAEL COHN, ACCOUNTING TODAY

IRS Gives Joplin Area Taxpayers Additional Filing and Payment Relief

IRS Gives Joplin Area Taxpayers Additional Filing and Payment Relief

by | May 25, 2011 | Archives

ST. LOUIS –– Following the devastating tornado Sunday in the Joplin, Mo., area, the Internal Revenue Service is giving victims additional time to meet their tax obligations.
Individual and business taxpayers in Jasper County now have until Aug. 1, 2011, to file various returns and pay any taxes due. In addition, federal employment and excise tax deposits due on or after May 22 are now due June 6, 2011.
This relief applies to Jasper County victims of the May 22 tornado as well as earlier storms and flooding that began April 19. For any affected taxpayer, a filing or payment deadline falling on or after April 19 and before Aug. 1 is postponed until Aug. 1, 2011. The postponement also applies to other time-sensitive actions required to be performed during this period including the June 15 deadline for making the estimated tax payment for the second quarter of 2011. 
The filing, payment, and deposit deadlines for other Missouri counties affected by recent storms remain unchanged. See IRS.gov for more information.
You should still file your Tax Return even if it is late. Here’s why…

You should still file your Tax Return even if it is late. Here’s why…

by | May 24, 2011 | Archives

If you owe taxes and didn’t file your tax return or request an extension by the April 18 deadline, you may face interest on any unpaid federal taxes you owe and a failure-to-file penalty. The IRS will deny a request for an extension that is filed after 
midnight on April 18. However, you should still file your tax return, even if it’s late.

The failure-to-file penalty is 5 percent per month, or part of a month, of the balance due, up to a maximum of 25 percent. If the tax return is more than 60 days late, the minimum penalty is $135 or the balance due, whichever is less.

Interest and penalties add to the total amount you owe. The sooner you file, even if you can’t pay all or some of the taxes due, the less you will owe.

More information about penalty and interest charges is contained in Chapter 1, Filing Information, of IRS Publication 17.
No Change for Standard Mileage Rate

No Change for Standard Mileage Rate

by | May 19, 2011 | Archives

During the May 12 payroll industry conference call, an IRS spokesperson said that the IRS has no current plans to increase the 2011 standard mileage rate of $.51 per business mile, despite the increase in gasoline prices. There was no mention of the rates for medical/moving at $.19 per mile or charity miles driven at $.14