Contractors Will Be Required to Disclose Tax Debt

By: Frederic J. Frommer
By: Frederic J. Frommer

WASHINGTON (AP) -- A new federal rule will require government contractors to disclose whether they owe federal taxes or have violated federal criminal tax laws following congressional investigations that found companies owing millions of dollars were still getting government contracts.

The rule published this week is in response to a request by the Senate Permanent Subcommittee on Investigations in 2006.

Back then, the Government Accountability Office determined that one in 10 companies contracting with the General Services Administration owed unpaid federal taxes, totaling $1.4 billion.

That investigation found that despite owing between $100,000 and more than $9 million to the government, the owners and officers of some companies had substantial personal assets, including homes worth more than $1 million and luxury vehicles.

Previous GAO investigations found that Pentagon contractors owed $3 billion in taxes and non-defense contractors owed $3.3 billion.

"This rule places a guard at the front gate, forcing tax-cheats to think twice before seeking a federal contract," said Minnesota Sen. Norm Coleman, who chaired the subcommittee in 2006 and is now the panel's top Republican. He added that the new rule will "effectively weed out tax-delinquent contractors."

The rule does not bar companies that owe federal taxes from getting contracts. But it adds violations of federal criminal tax laws and tax delinquency to standards of contractor responsibility - in essence, adding them to conditions that are weighed when determining whether to award a federal contract.

Potential contractors will be required to disclose whether they owe $3,000 or more in federal taxes.

"It is unacceptable for contractors doing business with the government to be delinquent in paying their taxes," said Jane Lee, a spokeswoman for the White House Office of Management and Budget, which oversees the government's contracts policy. "That's why the administration is taking significant steps to boost accountability and ensure contractor tax compliance."

When the rule was originally proposed last year, it followed recommendations by the Senate Permanent Subcommittee on Investigations to cover all tax debts - not just federal ones. But the final rule narrows that to federal taxes.

In publishing the final rule, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council said that they decided to remove state, local and foreign tax violations because they would "unduly burden" both potential contractors and federal contracting officers. The councils develop and review changes to federal acquisition regulations.

Still, said Sen. Carl Levin, a Michigan Democrat who now chairs the subcommittee, "The new rule should help cull out the tax dodgers who are trying to get paid with federal dollars at the same time they are thumbing their noses at U.S. taxpayers."

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