Although federal law prohibits agencies from contracting with businesses that have unpaid federal tax liabilities, more than 1,100 vendors doing business with the IRS owe a combined $589 million in federal tax debt, according to a report by the Treasury Inspector General for Tax Administration.

TIGTA found that the vast majority of vendors that conduct business with the IRS meet their federal tax obligations. However, 1,168, or 7 percent, owed federal tax debt as of July 2012, the most recent data for which information was available at the time of the review.

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