The Internal Revenue Service is unable to prevent contractors with unpaid taxes from receiving payments, according to a new report, despite legislation authorizing it to do so.
The report, from the Treasury Inspector General for Tax Administration, noted that ever since fiscal year 2012, annual appropriation bills for the federal government have prohibited the IRS from making contract awards to corporations with unpaid federal tax liabilities, with limited exceptions. In previous reports, TIGTA has found the IRS does not effectively screen its contractors for delinquent federal taxes.
The new report, from July, but publicly released this week, found the IRS tax check process is still ineffective in identifying tax delinquent federal contractors. As a result, the IRS remains at risk of awarding contracts to businesses that aren’t complying with federal tax laws.
“As a result, the IRS has been unable to systematically prevent contractors that have not met their federal tax responsibilities from receiving federal contract dollars,” said TIGTA.
Under current policies, the IRS is supposed to check the taxes of all bidders for contract solicitations over $250,000. TIGTA reviewed a statistical sample of 73 out of the 336 contracts of $250,000 or more that the IRS awarded between September 2012 and August 2014. It found no evidence for 21 of them (that is, 29 percent) that the contracting officer checked the taxes of the winning bidders. In all 73 contracts, there was no evidence that the IRS checked the taxes of the other qualified bidders either.
The IRS needs to address several factors to have an effective tax check process, according to TIGTA. For example, the tax check results did not have enough information to allow the IRS contracting officers to support their decisions. In addition, IRS policies did not give contracting officers the ability to communicate the results of their tax checks to the affected contractors when the results indicated there were outstanding tax debts. Finally, the tax checks were only performed for contract solicitations bigger than $250,000. Thus, contracting officers might inadvertently violate the conditions placed upon the expenditure of appropriated funds.
The Office of the IRS’s Chief Financial Officer has made efforts to revise and automate the tax check process, and it has developed some criteria to identify contractors who are prohibited from receiving contracts, the report acknowledged. However, the last revision of the tax check policies and procedures by another IRS office, the Office of Procurement, had not occurred as of March 2016.
In its report, TIGTA recommended the IRS CFO ensure the information provided to contracting officers in tax check results contains the necessary information to determine whether a contractor is prohibited from receiving contract awards under federal appropriations law. TIGTA also made several other suggestions to the Chief Procurement Officer to improve the policies and processes.
In response to the report, IRS management agreed with TIGTA’s recommendations. The IRS has developed a database that automatically identifies tax indebtedness status that contracting officers can use to help them determine eligibility for contract awards. In addition, the IRS has drafted a Notice and Consent provision that will be included in all of its contract solicitations to advise prospective contractors that a tax check will be conducted before a contract is awarded. The notice will be published in the Federal Register.
“We are committed to improving our processes and controls regarding Contractor Tax Checks,” wrote IRS Chief Procurement Officer Shanna R. Webbers in response to the report.
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