Some contractors owed taxes before getting stimulus infusion, GAO finds

At least 3,700 federal contractors that received economic stimulus law funds owe $757 million in unpaid federal taxes, according to a new report from the Government Accountability Office.

The stimulus award recipients — including prime contractors, subcontractors and vendors — collectively got more than $24 billion under the American Recovery and Reinvestment Act of 2009, despite owing federal taxes as of Sept. 30, 2009, Gregory Kutz, director of forensic audits and investigative services at GAO, said in the May 24 report.

That represents about five percent of the 80,000 contractors and grant recipients that received stimulus law funding and were reviewed by GAO. Approximately 95 percent of the contractors reviewed did not owe unpaid federal taxes.

Related coverage:

President orders clampdown on tax-delinquent contractors

Under federal law, there is no prohibition on the awarding of contracts or grants to entities because they owe federal taxes. GAO has suggested that Congress consider such a stipulation.

For the recipients that owed federal taxes, the taxes owed consisted of $417 million in corporate income taxes, $207 million in payroll taxes and $133 million in unemployment, excise and other taxes.

About 65 percent of the estimated amount owed was from the tax periods of 2003 through 2008.

The GAO examined 15 cases in detail and forwarded the cases to the Internal Revenue Service for further investigation. The report does not name those contractors.

The GAO made no recommendations in the report.

In response to the report, John Higgins, director of accountability for the Recovery and Transparency Board that oversees the reporting of the stimulus law spending, said GAO identified a potentially significant problem and suggested that the board ought to have access to the same tax information.

“Access to the same tax information utilized by GAO in its analysis could likewise greatly assist the Recovery Board in its mission of preventing fraud, waste and abuse of Recovery funds,” Higgins wrote.