IRS Awarded $18.8M in Contracts to Companies with Tax Debts

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The Internal Revenue Service awarded $18.8 million in contracts to 17 corporations with federal tax debt during fiscal years 2012 and 2013 despite a legal prohibition from doing business with corporations that owe back taxes, according to a new government report.

The report, publicly released Wednesday by the Treasury Inspector General for Tax Administration, pointed out that beginning in fiscal year 2012, federal law has prohibited the IRS from using appropriated funds to enter into a contract with a corporation that has certain federal tax debt and/or felony convictions, unless a Department of the Treasury Suspension and Debarment official has considered suspending or debarring the corporation.

TIGTA reviewed whether the IRS had well-designed and effective management controls in place over the use of appropriated funds in fiscal years 2012 and 2013 to implement the requirements of the federal law that prohibited the award of contracts to corporations with certain Federal tax liabilities. The Consolidated Appropriations Act of 2012 also prohibited the IRS from using its appropriated funds to enter into a contract with any corporation that was convicted or had an officer or agent of such corporation acting on behalf of the corporation convicted of a felony criminal violation under any federal law within the preceding 24 months.

TIGTA found that the IRS did not have effective controls in place to prevent the award of contracts to corporations with certain federal tax debt and/or felony convictions. Inspectors identified 17 corporations that were awarded a total of 57 contracts valued at about $18.8 million during FYs 2012 and 2013, while the corporations had federal tax debt.

In addition, TIGTA found that the IRS did not follow the Treasury Department requirement to insert specific language in solicitations requiring corporations to assert whether or not they have certain federal tax debt and/or felony convictions. Based on a statistical sample of contracts awarded in FY 2012 and 2013, TIGTA found that the IRS did not require corporations to self-certify prior to contract award, as required, for any of the 143 sample cases.

TIGTA recommended that the IRS update its current procurement policies and procedures to reflect Treasury Department requirements and ensure that contractor self-certifications are obtained and reviewed prior to awarding contracts.  TIGTA also recommended that the IRS develop procedures to determine what constitutes federal tax debt, as defined by the Consolidated Appropriations Act of 2012, for the purpose of conducting tax checks to comply with this federal law.

In response to the report, IRS management agreed with two of our recommendations and partially agreed with two other recommendations. The IRS plans to conduct training for its contracting officials and monitor contracting actions for compliance with Treasury policy. However, the IRS asserted it was appropriate to award nearly $18 million of contract modifications to contractors with federal tax debt.

“We are committed to ensuring that the IRS complies with all regulatory guidance and take this matter seriously,” wrote Kevin Q. McIver, acting chief of agency-wide services at the IRS, in response to the report.

He pointed out that the TIGTA report acknowledged that 32 of the 57 contracts were modifications to existing contracts with a total value of approximately $18 million.

“By including the 32 modifications within TIGTA’s calculation, we feel TIGTA improperly interpreted the 2012 and 2013 policies on this matter,” wrote McIver. “The policies were clear in that they only applied to new solicitations. A proper analysis shows the identification of 25 new awards valued at less than $900,000.”

TIGTA said it disagreed with this assertion. The contract modifications were related to contracts awarded before the new requirements of the federal law became effective. However, all 32 modifications were awarded after the law was enacted and the nearly $18 million to fund the new work related to these modifications was obligated after the new law became effective. Therefore, TIGTA believes the IRS was prohibited from using appropriated funds to make these awards per the Treasury’s implementing guidance.

An IRS spokesperson emailed a further comment on the report to Accounting Today on Wednesday. “The IRS remains deeply concerned about awarding contracts to delinquent corporations,” said the IRS statement. “We have taken a number of corrective steps to make improvements in this area, and we will continue to do more. It is important to note that nine contractors—more than half of the 17 contractors cited in the TIGTA report—are now compliant with their taxes, with one of those in an installment payment agreement. To put this into perspective, the IRS awarded more than 20,000 contracts worth billions of dollars in fiscal years 2012 and 2013. That means the 57 contracts identified in the report represent a small fraction of overall IRS contracting work—well under a half percent of the total awarded. The IRS remains committed that everyone, including contractors, stays in compliance with the tax law and pays their fair share of taxes. Going forward, the IRS will continue focusing on this area and applying appropriate checks and protections to ensure companies receiving awards meet their tax obligations.”

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