Coleman and Levin Call for Reforms to Federal Contractor Levy Program

Senators Norm Coleman, Chairman and Carl Levin, Ranking Member of the Permanent Subcommittee on Investigations today obtained commitments from the Commissioners of the Internal Revenue Service and the Financial Management Service to expand the responsibilities of the Federal Contractor Tax Compliance Task Force to include resolving problems that have prevented the federal government from collecting unpaid tax from civilian contractors’ payments. The Task Force, formed at Senators Coleman’s and Levin’s request last year, has successfully addressed problems associated with Department of Defense contractors who were not paying taxes. As a result of those efforts, collections from DOD contractors have increased over 2500 percent, from $680,000 in 2003 to an estimated $17.25 million in 2005. “The widespread tax cheating by federal contractors will end. Step by step we are identifying and closing the loopholes that have allowed federal contractors to cheat on their taxes.” said Senator Norm Coleman. “It is disgraceful that 33,000 contractors contracting with the federal government owe over $3.3 billion in unpaid taxes,” said Levin. “This tax dodging hurts honest taxpayers, honest businesses, and our country as a whole. Effective use of the federal tax levy program is necessary to help keep the tax dodger’s hand out of the taxpayer’s wallet.” In a June 16th hearing before the Permanent Subcommittee on Investigations representatives from the Government Accountability Office will report that there are 33,000 contractors at federal civilian departments and agencies who owe $3.3 billion in unpaid taxes. Last year the Financial Management Service missed the opportunity to collect $50 million from these contractors’ payments because it does not screen all contractor payments and many of the payments that are supposed to be screened had incomplete or inaccurate information and could not be matched. Further, GAO identified 50 cases where federal contractors were engaged in fraudulent or potentially criminal activity through their abuse of the tax system. Some of these contractors owned multi-million dollar properties, million dollar homes and numerous luxury vehicles while they failed to pay their taxes. For example, • A health care company doing business with the Department of Health and Human Services and the Veterans Administration owes over $18 million in unpaid tax. The owner has purchased multi-million dollar properties, an unrelated business, residential and commercial properties valued in the tens of millions and a fleet of luxury vehicles. • A waste collection services company doing business with the Veterans Administration owes almost $13 million in unpaid tax. The owner of the company owns residential property located near a golf course and commercial properties in several states worth over $2 million. Some of these abuses demonstrated a conscientious effort to evade or otherwise avoid the imposition of a levy on their contract payments. For example, • Over a twenty year period a contractor, who provides payroll and employment services, has repeatedly not paid taxes, declared bankruptcy and reopened his business under a new name usually at the same address. This contractor was paid over $1 million by federal agencies in 2004 and owes nearly $900,000 in unpaid taxes. • A building maintenance company that owes nearly $1 million in unpaid tax entered into an installment agreement with IRS and defaulted on the agreement. The company then made the IRS an offer in compromise to settle the tax debt. IRS rejected the offer. For over 5 years this company avoided having their payments levied. • IRS entered into an installment agreement with a court reporting company for the Department of Justice who owes over $400,000 in unpaid tax. Last year the company paid $2,000 on the agreement. At that rate, the tax debt will be paid off in a little over 200 years. The hearing is part of the continuing effort to expose and stamp out government waste, fraud and abuse under PSI Chairman Senator Norm Coleman (R-MN) and ranking member Senator Carl Levin (D-MI), who with Senator Susan Collins (R-ME), Senator Joseph Lieberman (D-CT), and Senator Daniel Akaka (D-HI), requested the GAO investigation. The results follow up on a PSI hearing last year which revealed that 27,000 defense Department contractors owed more than $3 billion in unpaid taxes. In response to those findings, Senators Coleman and Levin requested changes in the Federal Payment Levy Program which have resulted in a dramatic increase in collections from delinquent defense contractors. Contacts: Tom Steward (Coleman) 202-224-5641 Tara Andringa (Levin) 202-228-3685