Tax cheats could lose fed contracts

In addition to cutting the budget, some in Congress want to make sure the federal government does a better job of collecting what it is owed.

The U.S. House of Representatives this month passed a measure that would ban federal agencies from giving large contracts and grants to contractors who are delinquent in their taxes. That potentially could have a big impact locally because of the number of contracts tied to Wright-Patterson Air Force Base.

The bill, which passed the House unanimously April 15, is something of an evergreen — President Barack Obama sponsored similar legislation in 2007, when he was a U.S. senator from Illinois. And similar legislation passed the House last year but never moved forward in the Senate.

The issue has been in the spotlight since at least 2007, when the Government Accountability Office did a series of audits finding that about 27,000 Defense contractors, 33,000 civilian agency directors and 3,800 General Services Administration contractors owed a total of $7.7 billion in federal taxes.

“This is truly low-hanging fruit,” said Scott Amey, a lawyer with the Project on Government Oversight, who acknowledged the frustration of the government cutting its budget even while it’s owed money by companies that benefit off the federal government.

While federal acquisition regulations require contractors to certify that they do not owe taxes, he said, “there are gaps” that the legislation could address.

“The government has to do a better job collecting money that’s owed,” he said. “We should be looking at that before making any cuts.”

Suzanne Sumner, a Dayton lawyer at Taft, Stettinius & Hollister who represents defense contractors, said it’s a good idea to ban contracts from companies that are legitimate tax scofflaws, but she cautioned against an all or nothing approach. A contractor might have a justifiable reason for the delinquency, she said, or be in the process of challenging the amount owed.

Roger Jordan, the Arlington, Va.-based Professional Services Council vice president of government relations, said while PSC agreed with a prohibition on contracts to companies that owe delinquent taxes, he’s concerned federal agencies might act prior to a final decision on a contractor’s tax status.

Currently, Federal Acquisition Regulations say a final decision must be adjudicated and the amount owed must be greater than $3,000 to be ineligible for federal contracts, he said.

Rick Little, president of Starwin Industries, a Dayton spare parts manufacturer, said his company has paid its taxes and expressed surprise any contractor could land a federal contract if a business hasn’t paid what it owes the government.

“With the scrutiny we get from the government whenever we get contracts, I’m surprised the government would even give anyone a contract if they haven’t paid their taxes,” he said.

But Roy E. Anderson, president and chief executive officer of Defense Research Associates in Beavercreek, said the House legislation is a “two-edge sword.”

“You can’t earn the money if you don’t get the contract,” he said.

The Internal Revenue Service already has the authority to collect taxes from federal contracts, Anderson said.

This month, the Office of the Under Secretary of Defense issued a memorandum against using tax dollars to contract with corporations that have unpaid and delinquent taxes, or a felony criminal conviction under federal law within the past two years. The April 8 memo, however, noted an exemption if a federal agency has “made a determination that this further action is not necessary to protect the interests of the Government.”

In March, U.S. Sens. Tom Coburn, R-Okla., and Tom Carper, D-Del., urged former Defense Secretary Leon Panetta to take action against Defense contractors who do not pay their taxes. They were reacting to a Feb. 29 USA Today story reporting that the two owners of Defense contractor Leonie Industries owe more than $4 million in unpaid taxes.

“As you know, when U.S. military personnel have delinquent debts, the Department of Defense can be ordered to garnish their wages until these debts have been settled,” the senators wrote. “If our wartime contractors — or any of the Department’s contractors, for that matter — have accumulated sizable tax debts, then we believe that similar action should be taken against these contractors.”

Deborah Gross, a Dayton-area contractor, said she didn’t disagree with the idea of punishing tax-delinquent contractors – particularly if they weren’t working to pay back the taxes they owed.

“We’ve all got to do a better job of living within our means, and I think that doing things that are common sense steps make sense,” she said. “It’s a far cry from the sequester, which makes no sense.

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