IRS Falls Short in Tracking Tax-Delinquent Contractors

Despite past admonitions, the Internal Revenue Service still has a ways to go in preventing the award of agency contracts to firms that owe back taxes, an agency watchdog has found.

“The IRS tax check process was not effective in identifying tax-delinquent contractors,” wrote the Treasury Inspector General for Tax Administration in a report dated July 20 but released this week. The IG called for “significant improvements” to the process.

In a sampling of 73 awards among 336 contracts of $250,000 or more from September 2012 through August 2014, auditors found that 21, or 29 percent, “did not have evidence that the contracting officer performed the required tax check on the winning bidders.” What’s more, contracting officers handling all 73 contracts documented no tax checks on competing bidders.

Under the Federal Acquisition Regulation, failure to pay taxes is among the criteria that can rule out a prospective contractor for future work. “Contracting officers are required to perform responsibility determinations prior to each contract award by using the FAR 9.104-1 standards and consider information submitted by the contractor or information they research or acquire from other sources,” the report said. That information is used to determine whether, for example, the company is enrolled in a repayment plan.

The IRS officers, however, did not provide sufficient documentation of their tax checks, and agency policies “did not give contracting officers the ability to communicate tax check results to the affected contractor using consent processes when tax check results indicated tax debt.” By checking only those solicitations worth more than $250,000, TIGTA added, “contracting officers could inadvertently violate the conditions placed upon the expenditure of appropriated funds.”

Despite efforts to automate the tax check process by the IRS Office of the Chief Financial Officer, “current Office of Procurement policies and procedures are outdated, do not accurately reflect the tax debt prohibitions in federal appropriations law, and do not allow communication between contractors and COs to resolve award eligibility matters specific to tax debt,” the inspector general wrote. As of now, agency contract solicitations do not put bidders on notice that their tax delinquencies would be disqualifying.

TIGTA recommended that the IRS’s chief financial and chief procurement officers improve documentation and free up contracting officers to communicate with companies seeking contracts, as well as recast solicitations to alert prospective contractors of their obligations.

The IRA agreed, noting that it has created a database to alert contracting officers of delinquencies.

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