Senator Collins: Defense Contractors Who Cheat on Their Taxes Must Be Held Accountable

WASHINGTON, DC—During a subcommittee hearing today examining widespread tax avoidance and evasion by Defense contractors, Senate Governmental Affairs Committee Chairman Susan Collins (R-ME) said those contractors must be held accountable for their actions.

“Federal procurement laws require contractors to demonstrate responsibility in order to do business with the federal government. A business that avoids or ignores its tax obligations fails that test,” said Senator Collins, whose Committee has jurisdiction over government procurement. “The 27,000 defense contractors who owe approximately $3 billion in uncollected taxes need to be held accountable.

“The Pentagon should evaluate whether or not these companies meet the standards under federal law to continue as government contractors,” Senator Collins added.

A General Accounting Office report released at the hearing revealed that more than 27,000 Defense Department (DOD) contractors owe back taxes, and the DOD and IRS have not been as diligent as they should be in their efforts to collect those taxes. Under federal law, the government may withhold part of a contractor’s payment to offset for taxes the contractor owes the government. In order to accomplish this, however, federal agencies must report contract payment information to the Financial Management System. The Pentagon has failed to use this tool in far too many cases. In addition, although the IRS knows which contractors owe back taxes, it does not effectively coordinate this information with DOD, so many delinquent contractors continue to receive payments from the government.

“At a time of high deficits, it is disturbing that the Pentagon appears to have been negligent in reporting payment data to the Treasury that could have helped the IRS collect taxes owed but not paid,” Senator Collins said.

The Defense contractors in question provide a variety of goods and services, such as construction, catering, research, and parts or services related to weapons.

The GAO report is available online at .