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.”