The IRS has been paying millions to tax-cheat contractors who owe millions of dollars in debt to the federal government, the agency’s inspector general said Wednesday in a report that notes the payments even break federal law.
Officials awarded $18.8 million in contracts to 17 companies with tax debts in 2012 and 2013 — despite a 2012 law that requires contractors to be caught up on their payments in order to do business with the agency.
The embattled agency doesn’t even bother to check whether contractors are up to date in their taxes, the audit found.
“The IRS has not established a definition of federal tax debt and currently does not perform proactive tax checks specifically to determine if prospective contractors are in compliance with federal appropriation law,” the inspector general investigators said in their report.
The IRS contested the accusations, saying that most of the nearly $20 million in contracts were updates to existing contracts issued before the 2012 law. When only new awards were included, the agency said it only broke the law on $900,000 worth of contracts.
“The policies were clear in that they only applied to new solicitations,” Kevin W. McIver, an IRS official, said in an official reply to the inspector general.
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But the inspector general said the modified contracts should be treated like new contracts and thus should never have been granted.
It’s the latest hiccup for the IRS, which has been reeling from reports that it employs willful tax cheats within its ranks of workers, and that it regularly ignores warnings that it’s doing business with tax-cheat companies.
Fed up with the reports, Congress several years ago included language in the annual spending bill demanding that the IRS not issue contracts to tax cheats.
The Treasury Department, which oversees the IRS, even has a policy of asking companies to report their tax debts.
But IRS contract officers either said they never saw the policy or ignored it because they couldn’t figure it out.
In a press statement Wednesday, the IRS said nine of the 17 contractors with unpaid taxes at the time of the report have since paid up — including one who is paying on an installment plan.
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The agency also said the amount of the contracts in question is small, amounting to less than half a percent of the total contracts issued by the IRS.
Congressional critics said the agency’s lawbreaking behavior shouldn’t be ignored.
“The IRS continues to stand as a shining example of everything that Americans despise about Washington bureaucracy,” said Rep. Diane Black, Tennessee Republican. “When families in my district don’t pay their full tax bill by the filing deadline — even if it is the result of an honest mistake — they can expect a penalty. But apparently if you are a well-connected corporation that doesn’t pay up at tax time, the IRS rewards your delinquency with a government contract.”
Ms. Black said the report should push Democrats to drop their insistence on finding more money for the IRS.
Senate Democrats have vowed, backed by a veto threat from President Obama, to defeat every spending bill this year until the GOP agrees to boost spending for the domestic federal bureaucracy. Republicans have called for a $40 billion boost for defense but want to cut deeper into the IRS, the Environmental Protection Agency and other domestic agencies.