Based on the report of TIGDA (Treasury Inspector General For Tax Administration), dated September 22, 2022; it appears that a lot of federal contractors that were able to secure government contracts, still owed a substantial amount of taxes.
A Little History
Self-certification has been set in place by congress and added to FAR for a few years now, there are still those who were able to circle around the rules and continue to get more contracts. FAR 52.209-11 Representation by Corporations Regarding Delinquent Tax Liability or a Felony Conviction under any Federal Law. states that the Government will not have a contract with any corporation that (1) Has unpaid tax liability (2) Convicted of a Federal Crime
The FAR rule also discusses that the burden of the certification is on the federal contractor and that they have (1) filed tax returns for the last three years; (2) have not been convicted of a criminal offense and (3) have not been notified within the last 90 days of any unpaid taxes.
Why TIGDA Did the Audit
Between 2015-2016, the GAO (Government Accountability Office) discovered that Federal contracts were awarded to contractors that were delinquent in their taxes.
A Few Numbers From the Report
According to the report of TIGDA they have identified contractors that got Federal Contracts between Oct 2018 and Dec 2019:
➔ 3,040 owed taxes
➔ they still received 102,869 contracts
➔ these amounted to nearly $10.2 billion
➔ the recipients owed $621.8 million in taxes during the time
➔ 80% of the delinquents were Corporate Entities
➔ Most of what was delinquent were withholding taxes for employees
The agency that awarded the most contract dollars during the audit were:
➔ Navy, Army, or Air Force
➔ Defense Logistics Agency
➔ Federal Acquisition Service
➔ Department of Veteran Affairs
The total awarded amount was around $8.4 billion.
The government contractors that were delinquent provided these goods and services, amounting to $10.1 billion:
➔ Information, Finance, Real Estate, and Professional Services
➔ Trade, Transportation, and Warehousing
➔ Mining, Utilities, and Construction
➔ Education, Health, and Social Assistance
This still did not include the dollar amount of grants for grantees, over $$22.1 billion, while they still owed a total of $269.2 million in delinquent taxes.
It also was revealed in the report that these entities frequently did not self➔certify their taxes accurately.
Provided with $30 million by Congress under the Consolidated Appropriations Act of 2019, the IRS was tasked to establish a way for entities to request certification concerning their taxes. The report acknowledges the progress of the IRS for the Federal Contractor Tax Check System, which is planned for release on November 2022.
Difficulty in Implementation
Robert Choi, the IRS Privacy Chief Officer, appreciates that the report recognized the efforts of the IRS to develop the FCTCS (Federal Contractor Tax Check System). He cites that issues with the Office of Management and Budget, and the publication of new requirements in the Federal Acquisitions Regulations are hindering the IRS from completing and implementing the design of the Federal Contractor Tax Check System and no vendor or agency will use the certification until these issues are addressed.
Avoiding Future Issues
If your company is planning to acquire a federal contract, it would always be best to avoid future issues, rather than losing your contract midway. PWCPA PC can help you get all your tax concerns in order. Moreover, we can ready your system for your next federal contract, and we can handle every aspect of your government contract accounting to ensure that your company focuses on what’s important, to obtain the best results and the maximum profit from the contract.