GAO says at least 3,700 stimulus recipients are delinquent on taxes

Introduction

At least 3,700 Recovery Act recipients owe more than $750 million in taxes, despite receiving a $24 billion handout from the federal government. An analysis by the Government Accountability Office found that almost 5 percent of the 80,000 Recovery Act recipients had significant tax debt.

GAO’s estimation is likely a low-ball figure, considering that the IRS lacks information for unfiled tax returns or understated income.

Federal law does not prohibit the awarding of contracts or grants to corporations owing taxes and does not permit IRS to disclose taxpayer information to federal agencies unless the taxpayer consents.

GAO investigated 15 recipients with a total of $40 million in unpaid taxes, all of which were involved in potentially criminal activity, like failing to remit payroll taxes to IRS. Employers are required under federal law to hold payroll tax money before sending it to IRS, failing to do so can result in criminal penalties. These eight contractors and seven grant recipients received a total of $35 million in Recovery Act funds.

GAO did not name names, but cited construction, healthcare and engineering firms among the 15 cases. One construction firm received over $1 million in Recovery Act funds, but had almost as much—about $700,000—in unpaid taxes. At the time the company was delinquent on its tax payment, an executive had hundreds of thousands of dollars in casino transactions, GAO said.

Current regulations do not even require federal agencies to take tax delinquency into consideration when assessing applications, unless the contractor was specifically debarred or convicted for tax evasion.

Corporate income taxes comprised $417 million, or about 55 percent, of the estimated $757 million of unpaid federal taxes. Payroll taxes comprised $207 million, or 27 percent, of the taxes owed. The remaining $133 million was from other unpaid taxes, such as unemployment tax. Most of the unpaid taxes owed by recipients had been outstanding for some time— 65 percent were owed from 2003 through 2008.

Moira Mack, a spokeswoman for the Office of Management and Budget, which oversees the stimulus program, said her agency last year collected more than $100 million in tax debts and stepped up efforts to prevent tax delinquents from receiving federal contracts.

“Companies that want federal contracts are now required to certify whether they have a significant tax delinquency and that requirement is deterring tax delinquents from getting federal contracts,” Mack told The Associated Press. “These efforts are consistent with the steps this administration has taken through the Recovery Act to provide an unprecedented level of accountability and transparency on behalf of the American taxpayer.

The GAOanalysis found that most of the tax debt owed by Recovery Act recipients could not be collected through the federal levy program because the stimulus payments were not directly paid by the federal government to recipients that owed taxes. States or contractors were ultimately the ones disbursing recovery funds to the delinquent recipients, complicating efforts to hold them accountable.

The IRS is taking action against the 15 recipients highlighted by the GAO.

FAST FACT: The 2009 Recovery Act made $275 billion available for federal contracts, grants and loans. As of March 2011, $191 billion has been dispensed.