GAO finds 10 percent of GSA contractors owe back taxes

About 10 percent of all contractors hired by the General Services Administration owed $1.4 billion in unpaid taxes as of last June 30, GAO officials testified Tuesday before a Senate Homeland Security and Governmental Affairs subcommittee.

In the third hearing on delinquent contractors, GAO officials told the Permanent Subcommittee on Investigations that the agency does not routinely check whether prospective contractors have tax liens against them or have failed to pay the payroll taxes they have collected from employees, which is a felony.

Some abuses were so egregious, said Permanent Subcommittee on Investigations Chairman Norm Coleman, R-Minn., they could be turned into a reality TV show called, "Lives of the Rich and Famous Tax Deadbeats."

In one of 25 most extreme cases identified by the GAO, Coleman said the agency found a contractor who was paid more than $1 million over the past two years, even though he owes more than $12 million in payroll taxes. The owner made large cash withdrawals from his company for personal use, including more than $100,000 for gambling, Coleman said.

Another GSA contractor who owed $2 million in payroll taxes bought a residential property valued at $1 million and spent $500,000 on casinos, Coleman said. In all, GAO found 3,800 GSA contractors owed unpaid corporate income, payroll, excise and unemployment taxes.

Gregory Kutz, managing director of GAO's forensic audits and special investigations unit, said it would likely take legislation to require and authorize the GSA to check government contractors for tax compliance. Steve Sebastian, director of GAO's financial management and assurance team, suggested contractors give permission for the GSA to check whether back taxed were owed as a condition of being hired.

Coleman asked Acting Deputy Director Kathleen Turco why the agency did not screen applicants for any tax abuses. Turco said that GSA checks applicants for "tax evasion" but told the panel that she would look further into whether that extended into payroll taxes.

Both Coleman and Sen. Thomas Carper, D-Del., quizzed the GAO officials and IRS Commissioner Mark Everson on the feasibility of creating a database of tax deadbeats for use by GAO and other federal agencies.

Everson said, "I don't have a problem from a tax point of view," adding "it is a procurement question" rather than an issue for the IRS. Everson said the IRS is pursuing the 25 egregious GSA cases referred by GAO as well as 97 cases referred in previous hearings on Pentagon and civilian contractors.