Report: IRS gave $18M to firms with tax debts

Kevin McCoy | USA TODAY

The IRS awarded $18.8 million in contracts to 17 corporations that owed back taxes in fiscal years 2012 and 2013, despite a ban on the agreements, according to a government report issued Wednesday.

The nation's tax agency did not have "effective controls in place to prevent the award of contracts to corporations with certain federal tax debt and/or felony convictions," the report by the Treasury Inspector General for Tax Administration concluded.

The IRS challenged the number and dollar value of the contract awards questioned by the report, but said the agency had taken corrective steps on the issue.

Starting with the 2012 fiscal year, a federal law prohibited the IRS and other government agencies from contracting with corporations that have federal tax debts and/or felony convictions. A separate 2012 law barred the IRS from contracting with any corporation convicted of a federal felony within the previous 24 months. The ban also applied to firms whose officers had similar convictions.

Additionally, Department of the Treasury guidance requires IRS contract officers to obtain self-certification statements in which corporations seeking contracts attest to whether the or their officers had federal tax debts or felony convictions.

However, the IRS does not conduct proactive examinations to determine whether prospective contracting firms are in compliance with the federal requirements, TIGTA found. Auditors reviewed a statistical sample of 143 contracts and found that the IRS did not require any of the corporations involved to include the mandated self-certification.

As a result, TIGTA identified 17 corporations with tax debts that received 57 contracts valued at $18.8 million. In all, 32 of the awards represented modifications to existing contracts with a total value of approximately $18 million. Twenty five were new awards cumulatively valued at $900,000.

Auditors' interviews with IRS contracting officers found the tax agency employees either did not recall receiving the Department of the Treasury guidance or did not understand how it should be implemented.

TIGTA recommended that the IRS update its procurement policies and develop procedures to determine what constitutes federal tax debt.

The IRS fully or partially agreed with the recommendations, according to a May 5 written response by Kevin McIver, the tax agency's acting chief of Agency-Wide Shared Services.

But McIver contended that TIGTA auditors "improperly" included modifications to existing IRS contracts in their analysis. Only new contract awards were covered by the federal prohibitions on doing business with corporations that had tax debts, wrote McIver.

TIGTA disagreed with the IRS, noting that all of contract modifications and the nearly $18 million to fund the new work were approved "after the new law was enacted."

"The IRS remains deeply concerned about awarding contracts to delinquent corporations. We have taken a number of corrective steps to make improvements in this area, and we will continue to do more," the tax agency said Wednesday.

More than half of the contractors cited in the TIGTA report are now tax compliant, the IRS said.