- The Washington Times - Tuesday, March 14, 2006

Government-sanctioned contractors owe $1.4 billion in back taxes yet maintain million-dollar homes and luxury cars and go gambling at casinos, says a congressional oversight study.

Nearly 4,000 businesses registered by the Government Services Administration (GSA) to sell supplies or provide services to federal agencies are tax deadbeats, according to the Government Accountability Office study.

“During fiscal year 2004 and the first nine months of fiscal year 2005, thousands of GSA contractors abused the federal tax system with little consequence,” the study’s authors told a Senate panel yesterday.

The arrears include nearly $300 million in payroll taxes withheld from employees for federal income taxes, Social Security and Medicare.

“It adds insult to injury that these tax deadbeats are actually paid enormous amounts of money every year from American tax coffers,” said Sen. Norm Coleman, Minnesota Republican.

As chairman of the Homeland Security and Governmental Affairs permanent subcommittee on investigation, Mr. Coleman called for this and other investigations of federal contractors, who are not barred unless convicted of a crime.

“It is simply unacceptable that tax cheats who owe the government millions in back taxes get millions of dollars from the government,” Mr. Coleman said.

The investigation focused on suspected abusive practices or potential criminal activity of 25 businesses that provide security, building maintenance, computer or personnel services for the GSA and the Defense, Homeland Security, and Justice departments.

One security firm with a $1 million contract owes more than $9 million in taxes, yet the owner withdrew large amounts of money from the company for personal use including $100,000 for gambling.

The gambling habit was shared by another contractor who was awarded at least $100,000 in a hurricane relief contract. Despite owing $400,000 in back taxes, the owner made “multiple large cash [withdrawals] at gambling casinos,” the report said. A separate contractor who owes $2 million in taxes but received a $100,000 contract “made about $500,000 of cash withdrawals at gambling casino.”

A security firm with a $1 million contract and $2 million arrears in payroll taxes reported the owner’s personal income at nearly $1 million. “Owner owns residential property, commercial real estate, and land worth over $1 million. Owner owes $200,000 in personal income taxes,” the report said.

Numerous company owners with contracts ranging from $100,000 to $1 million own million-dollar homes, luxury vehicles, commercial real estate, rental properties, yachts, and even a $25,000 gold bracelet, yet shirk paying taxes.

“There is a broad spectrum of tax-related violations that are utterly ignored by our contracting review process. As a result, many federal contractors continue to receive contracts even though they owe a massive amount in back taxes,” Mr. Coleman said. “Until this problem is rectified, the federal government is likely to be awash in federal contractors who are cheating on their taxes.”

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